What is CPM (Advertising)

Cost Per Mille, or CPM, is a key metric that denotes the cost of an ad per one thousand impressions. It is widely used in both modern programmatic advertising channels and also more traditional models as it enables marketers to effectively understand the cost-effectiveness and reach of their advertisements so that they can optimize their campaigns and budgets.

How is CPM calculated?

Calculating cost per mille is relatively simple to do. First divide the total spend of a campaign by the total number of impressions generated. The resulting number will be the average cost of a single impression, which can be multiplied by a thousand to give the cost per mille.

To illustrate with an example, let’s say the total spend for a campaign is $5,000, and the number of impressions generated is 200,000.  When we divide 5,000 by 200,000, we get 0.025. Multiply that by 1,000 and we get 25. This means that the CPM is $25 per 1,000 impressions.

What is the difference between CPM, CPC, and CPA?

CPM is just one metric that marketers use to analyze campaign performance. Cost Per Click (CPC), and Cost Per Acquisition (CPA) are two alternative metrics that offer different insights.  CPC, as the name suggests, indicates the average cost of an ad per click. CPA, on the other hand, measures the cost of an ad by the number of times that users carry out a desired action, such as a sign-up or a purchase.

These three metrics have distinct uses. CPM is useful for understanding brand reach, visibility, and awareness. CPC, on the other hand, is most appropriate for assessing user engagement, while CPA is best suited to evaluating the effectiveness of conversion-focused ad campaigns.

What factors contribute to a good CPM?

Advertisers are always aiming to improve CPM so as to ensure maximum return on all of their advertising output. The following are some factors that contribute to the CPM of an ad:

• Ad quality: Ads that are of high quality and enhance the user experience are more likely to gain priority with ad platforms, and are therefore more likely to benefit from a lower CPM.
• Ad placement: Publisher platforms and specific types of space will have varying levels of demand associated with them, which is reflected in CPMs. Specific times of year can also see demand increase, which influences CPMs further.
• Ad relevance: When Ads are precisely targeted to reach particular demographics, they are more likely to perform better with their audience and result in fewer waster impressions. In this way, ad relevance can contribute to a positive CPM.
• Bidding strategies: How one chooses to go about purchasing ad inventory can also have an impact on CPM. Manually adjusting bid parameters or using automated bidding with a demand-side platform (DSP) can help advertisers optimize the CPM of their ads and ensure that their campaigns are as cost-effective as possible.