What does Cost Per Mille (CPM) mean?

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Definition:

Cost per mille (CPM) is a term in advertising that refers to the cost for every 1,000 impressions on a particular ad.

🤔 Understanding CPM

Cost per mille (CPM, aka cost per thousand) is a popular method for pricing online advertising. (Mille is the Latin word for thousand.) CPM refers to the cost an advertiser pays for every 1,000 ad impressions. It helps advertisers to estimate what their ad costs will be. The higher the CPM, the more it costs per 1,000 impressions to run the ad. The lower the CPM, the more bang the advertiser gets for its buck. CPM is one way that advertisers measure the success of a particular ad. Advertisers also take into account the cost per click (CPC) and the cost per acquisition (CPA). These measurements can tell an advertiser how their ad is performing and indicate the potential return on investment.

Example

Let’s say a local restaurant is planning to run social media ads to promote an upcoming event. The restaurant manager spends $500 on ads for the event, and the ads get a total of 20,000 impressions. Using this information, the manager can determine that their CPM, or cost per thousand impressions, was $25 ($500 / 20,000 x 1,000).

Takeaway

CPM is like measuring your car’s gas mileage…

When you put gas in your vehicle, you might want to measure your miles per gallon (MPG) to see how many miles you get each time you pay to fill your tank. The less money you spend on each mile, the better it is for your wallet. It works the same way for CPM. You measure CPM to see how many ad impressions you’re getting for your money. The lower your CPM, the more bang you’re getting for your buck.

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How does CPM work?

A company looks at several metrics to analyze how well their ads are performing. Generally speaking, companies want to be able to acquire new customers at an affordable rate. One way a company analyzes the success of their ads is by using the cost per mille (CPM).

The CPM measurement takes into account the number of impressions a display ad gets, whether it’s on a search engine or a social media site. It ultimately refers to the cost that an advertiser pays for each ad impression served. Calculating CPM is different depending on the advertising channel. When it comes to Google advertising, companies can indicate what CPM they’re willing to pay. In other cases, companies would use the data on ad impressions to calculate CPM.

What is an impression?

To better understand CPM, which measures the cost per 1,000 impressions, it’s helpful to take a closer look at what an impression is. In advertising, the term “impression” refers to each time an ad is viewed or displayed on a website. It can be challenging to count impressions for a few reasons. First, the number of impressions can be skewed by a single viewer reloading a page multiple times, seeing the ad numerous times in a single occurrence. Additionally, each ad publisher and server may measure impressions in a different way.

It’s also worth noting that an impression is not the same as reach. Reach is the number of unique users that see an ad, while an impression is the number of times a particular ad is served. For example, the same person could see the same ad multiple times. That would result in numerous impressions, but a reach of only one person.

How do you calculate CPM?

To calculate cost per mille (CPM), you can divide the cost of the ad by the total number of impressions the ad received. Then multiply the result by 1,000 to make it per thousand impressions. The formula looks like this:

For example, let’s say your online shop runs an ad that costs $250 to display in people’s Facebook feeds. You get to designate how many days your ad runs for, and what audience you’ll target. Over its run, the ad gets 5,000 impressions. To figure out the CPM for this ad, you would use the following formula:

What is the average CPM?

Cost per mille (CPM) is one of the figures that companies use to analyze the effectiveness of their ads. The average CPM for an ad often varies depending on the advertising platform. Many companies choose to run ads on search engines like Google, social media sites like Facebook and Instagram, or a combination.

For example, Google’s ad platforms are broken down into two separate networks. The Google Search Network is the platform for ads that appear in your search results. The Google Display Network serves advertisements that appear on other Google products, like Gmail and YouTube. Google allows advertisers to determine the CPM they want on their ads by bidding how much they’re willing to pay per thousand views. Things work a bit differently on social media, where advertisers don’t have as much control over their CPMs. The rates differ depending on the social media platform.

While website and social media ads may be the most popular choice for companies today, they’re not the only ways to advertise. Other mediums, like email, television, radio, direct mail, and print ads are also common marketing methods. The cost varies depending on the ad platform and campaign. One challenge with advertising outside through mediums such as print, radio, and TV may be that it’s harder to collect data on how many people saw your ad. For example, you might be able to see how many people tuned in to a TV channel at a particular time, but that doesn’t necessarily mean they were in the room when your ad came on. The same goes for a newspaper ad.

Because CPM rates depend on the kind of ad campaign you’re running, there’s no universal standard for a “good” CPM rate. In general, companies want to ensure they see a good return on investment (ROI) with their ads, but CPM isn’t necessarily the best way to measure those returns. Other factors, like cost-per-click (CPC) and cost-per-acquisition (CPA) have more of a direct effect on how much money a company makes from an ad.

How can companies reduce their CPM?

Companies generally want to get the most bang for their buck. When it comes to CPM, lower is better. There are several ways a company can decrease their CPM. Companies can try to target the right people with their ads. Online advertising platforms allow companies to target their ads based on several factors, like audience demographics and interests. The less competitive the keyword and audience is, the lower a company may be able to get its CPM.

What other metrics do companies use in online advertising?

In addition to cost per mille (CPM), there are a few other metrics that companies use to measure the success of an ad: cost per click and cost per acquisition.

  • Cost per click (CPC): While cost per mille is a metric that a company would likely care about if they wanted to increase brand awareness, a company looking to promote sales of a particular product or service will typically look at the cost per click — The amount a company pays for each person that clicks on its ad. Let’s say a company pays $100 to run an ad campaign on Facebook. The ad results in 5,000 impressions, but only 100 clicks. If the company divides the total cost of the advertisement by the total number of clicks, they’ll find that their CPC was $1 per click ($100 / 100 clicks).
  • Cost per acquisition (CPA): CPA refers to the average price a company pays per customer. Rather than focusing on those who saw or clicked on the ad, this metric focuses only on those who spend money. CPA is an important metric for companies looking to sell a product. Let’s say a company paid $100 for a Facebook ad that received 100 clicks, and 10 clicks resulted in someone purchasing a product. The company could calculate the ad’s CPA by dividing the total cost of the ad by the number of people who made a purchase. In this case, the overall CPA is $10 ($100 / 10). Think of CPA as the cost to make a single sale through an ad. Ideally, the CPA would be much lower than the cost of the product to ensure the company advertising makes a profit.
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