Contents
Some acronyms have become more ubiquitous than the words they represent. Did you know that Scuba stands for Self-Contained Underwater Breathing Apparatus? Or that CAPTCHA is short for Completely Automated Public Turing Test to tell Computers and Humans Apart?
Marketing is also chock full of acronyms. With hundreds of tools and tactics to remember, abbreviations are designed to simplify our jobs. But it can be tough to keep them all straight, especially when they're seemingly illogical—as is the case with CPM.
Perhaps you know CPM as "cost per thousand." Or maybe you just correlate the term with impressions. There's even a good chance you've used a CPM model to measure ad campaigns. So, where does the "M" come from? And what exactly are impressions? Let's review.
What does CPM stand for?
CPM (cost per mille or cost per thousand) is an industry-standard benchmarking metric. It helps marketers calculate the relative costs of their ad campaigns in a given medium. "Mille" is Latin for "thousands." And the Roman numeral “M” is also used to delineate 1,000.
CPM is the cost of displaying an ad one thousand times. It compares the relative efficiency of ad opportunities and/or media spend. Companies pay a price for every 1,000 impressions an ad gets—and CPM is powered by impressions. When used correctly, it can help evaluate the overall costs of ad campaigns.
And what's an impression?
An impression is a metric that tracks when a user sees a campaign. Also known as "ad views," impressions measure how many times ads are displayed. CPM helps marketers measure expenses for large numbers of impressions.
When users browse websites or apps that feature advertising space or ad tags, the code makes a call to the publisher's ad server asking which ad to serve. Ads are then displayed to the user—which generates an impression. Ad servers generally register and count impressions when the creative has downloaded on a device and is starting to load.
How to calculate CPM
CPM is calculated by taking the cost of advertisement, dividing it by the total number of impressions, and then multiplying the total by 1,000. In this context, CPM = (Cost/Impressions x 1,000). Using a theoretical example, if a campaign costs $10,000 and generates 500,000 impressions, the CPM would be $20.00.
Ultimately, CPM rates are set by platforms to calculate the total cost of campaigns. And there are plenty of useful tools that help advertisers figure out the cost of a campaign. But it's also important for marketers to understand the context of these impressions.
What is CPM in marketing?
While running a campaign through a calculator can help advertisers get an initial read on costs, it's important to have a better understanding of your campaign. A CPM doesn't tell you much if you don’t understand the conversions behind these impressions.
It's important to know that CPM's do not track whether ads were clicked. Let's say a user only stays on a website for 15 seconds and never scrolls to see your ad. Or, a podcast listener inadvertently skips over your ad spot in hopes of getting straight to their content. These may get counted as impressions—but they're certainly far from user engagement, let alone conversions.
Of course, there are numerous ways to conduct online advertising campaigns. But for the sake of time, let's compare the impression-based CPM model to the click-based model of CPC (or cost per click) advertising, and the action-based model of CPA (cost per action). While CPC enables advertisers to pay search engines or other publishers for each click, the CPA model finds advertisers paying hosts a predetermined fee for a specific type of action.
While CPC is cost-effective, it requires maintenance. And if you aren't continuously optimizing your results, you may end up overpaying for clicks. And while a CPA model allows advertisers to control costs specific objectives, advertisers can lose money from CPA campaigns if they have a low lead to sales ratio (because you'll be allocating more dollars to leads than actual sales).
Finally, publishers may oversell impressions in a CPM model, meaning that advertisers don't get the best bang for their buck.
Not all clicks are created equally.
If anything, we're hoping this article has illustrated that, while CPM continues to be an industry benchmark, it's important to compare your options. Vet your options and be aware of the bigger picture in the context of your goals and your industry's benchmarks. According to some research, average CPMs across Facebook are higher for publishing, retail, and telecom industries. On the other hand, tech, finance, and advertising all have lower CPMs.
Again, it's tough to determine if a CPM is objectively "good" or "bad" based on a single value. There's a lot more to it. A lower CPM isn't always positive, as it may indicate shoddy traffic—and a high CPM doesn't always net a higher ROI, as some inventory may still be on the table.
Our main advice? It's imperative to do your homework to avoid the smoke and mirrors. Assess your goals and objectives in the context of your campaigns. Analyze past performance data and benchmark your results. While not all clicks are the same, it's possible to figure out what works best for you.