What is Cost-Per-Thousand (CPM)?
Cost-Per-Thousand, or CPM, refers to the cost an advertiser pays for one thousand view of their online advertisement.
CPM isn’t used nearly as often as CPC, Cost-Per-Conversion, Return on Ad Spend (ROAS) or other ad tracking models.
It’s also worth noting that the “M” in CPM represents “Milli” which is Roman for mile which literally means “a thousand of pace.” The origin of CPM dates back to traditional advertising mediums, evolving into a key metric for online advertising. It bridged the gap between physical ad placements and the (at the time) new world of digital marketing, offering a measurable and scalable approach to online advertising costs.
How to calculate Cost-Per-Thousand
Here is the formula:
Cost-Per-Thousand = (Total Ad Spend / Number of Impressions) Ă— 1000
Example:
If a campaign costs $500 and receives 100,000 impressions, the CPM calculation would be:
($400 / 100,000 impressions) x 1000 = $4. This indicates that the cost for every thousand impressions is $4, providing a clear metric for budget allocation and campaign assessment.
See other calculations:
Why are CPM campaigns important?
Success in CPM campaigns is not just about the number of impressions. It involves analyzing metrics such as Viewability Rate, which indicates the percentage of ads actually seen by users, and Engagement Rate, reflecting how the audience interacts with the ad.
Pros and cons of using CPM campaigns
Advantages:
- Budget-Friendly: CPM allows for extensive reach at a comparatively low cost.
- Brand Exposure: It’s excellent for building brand awareness, as it ensures that a large audience views your ad.
- Simplicity and Predictability: CPM campaigns are easier to budget and plan due to their predictable nature.
Disadvantages:
- Potential for Fraud: Purchasing based on an ad view can lead to overpaying based on ad fraud techniques such as ad stacking, pixel stuffing and more.
- Lack of Engagement Tracking: CPM doesn’t account for user engagement or action.
- Potential for Low ROI: If not strategically implemented, CPM campaigns can lead to high views but low actionable results.
CPM vs CPC vs CPA
While CPM measures the cost of visibility, Cost-Per-Click (CPC) delves into the realm of direct engagement, charging advertisers based on the number of clicks an ad receives. This model is particularly effective for campaigns focused on direct user interaction and conversion, such as lead generation or e-commerce sales, where the goal extends beyond mere visibility to tangible user actions.
Cost-Per-Acquisition (CPA) differs significantly from CPM by focusing on specific user actions or conversions. Unlike the impression-based CPM, CPA deals with the cost associated with each conversion, be it a sign-up, sale, or other targeted actions. This model is often employed in highly targeted marketing efforts where the emphasis is on the quality of interactions rather than quantity.
