Cost-per-mille (cost-per-thousand), or CPM, is a term used in online advertising to describe the price an advertiser pays for every 1,000 impressions of their ad. An impression is counted each time an ad is displayed, whether it is clicked on or not. CPM is typically used to measure the effectiveness of display or branding campaigns, rather than campaigns that are focused on driving direct conversions.
To understand CPM, it’s helpful to know that it is calculated by dividing the cost of the ad campaign by the number of impressions, and then multiplying that number by 1,000. For example, if an advertiser spends £500 on an ad campaign that generates 50,000 impressions, their CPM would be calculated as follows:
CPM = (500 / 50,000) x 1,000 = £10
This means that the advertiser is paying £10 for every 1,000 impressions of their ad.
Factors that Influence CPM
There are several factors that can influence the CPM of an ad campaign, including:
- Ad placement: Ads that appear on premium websites or in highly visible locations will generally have a higher CPM than ads that appear on less popular or less visible websites or locations.
- Target audience: Ads that are targeted at a specific demographic or audience will generally have a higher CPM than ads that are more broadly targeted.
- Ad format: Some ad formats, such as video ads or interstitial ads, tend to have higher CPMs than other formats, such as banner ads or native ads.
- Ad industry: CPMs can vary widely depending on the industry in which the ad is being run. For example, CPMs for ads in the healthcare industry tend to be higher than CPMs for ads in the retail industry.
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Benefits of Using CPM
CPM is a useful metric for advertisers because it allows them to compare the relative cost effectiveness of different ad campaigns or ad placements. By comparing the CPM of different campaigns, advertisers can determine which campaigns are generating the most impressions for the lowest cost.
Additionally, CPM is a good way for advertisers to measure the effectiveness of their branding campaigns, since it takes into account the number of impressions the ad receives, regardless of whether it is clicked on or not.
Limitations of Using CPM
While CPM can be a useful metric for certain types of ad campaigns, it does have some limitations. One of the main limitations of CPM is that it does not take into account the number of clicks or conversions an ad generates. This means that an ad with a high CPM may not necessarily be generating the best return on investment (ROI) for the advertiser.
CPM vs. Cost-per-click (CPC)
It’s important to note that CPM is different from cost-per-click (CPC), which is another commonly used pricing model in online advertising. Unlike CPM, which measures the cost of 1,000 impressions, CPC measures the cost of each individual click on an ad.
For example, if an advertiser spends £500 on an ad campaign with a CPC of £0.50, they will pay £0.50 for each click on their ad, regardless of how many impressions the ad receives.
CPC is typically used for campaigns that are focused on driving direct conversions, such as sales or leads, rather than branding or awareness.
Using CPM and CPC Together
Many advertisers use both CPM and CPC to measure the effectiveness of their ad campaigns. By combining these two metrics, advertisers can get a more complete picture of the performance of their ads.
For example, if an advertiser is running a branding campaign with a high CPM, they might also want to track the number of clicks and conversions the ad generates to see if it is generating a good ROI. On the other hand, if an advertiser is running a conversion-focused campaign with a low CPC, they might want to track the number of impressions the ad receives to see if it is reaching a large enough audience.
Example of CPM in Action
To illustrate how CPM works in practice, let’s consider the following example:
An advertiser is running a display ad campaign on a popular website that targets a specific demographic. The website charges a CPM of £5 for ads that appear on its homepage, and the advertiser is targeting a daily budget of £50 for the campaign.
Based on the CPM and the daily budget, the advertiser can expect to receive the following number of impressions for their ad:
Impressions = (50 / 5) x 1,000 = 10,000 impressions
This means that the advertiser can expect their ad to be displayed a total of 10,000 times over the course of the campaign, assuming they reach their daily budget.
Using CPM to Optimise Ad Spend
To optimise their ad spend, advertisers can use CPM to compare the relative cost effectiveness of different ad placements or targeting options. For example, an advertiser might compare the CPM of different websites or ad networks to see which ones are providing the most impressions for the lowest cost.
Additionally, advertisers can use tools like Lunio to help prevent invalid traffic affecting their campaigns.
Frequently Asked Questions
What is the difference between CPM and CPC?
CPM (cost-per-thousand) measures the cost of 1,000 impressions of an ad, while CPC (cost-per-click) measures the cost of each individual click on an ad. CPM is typically used to measure the effectiveness of branding or awareness campaigns, while CPC is typically used to measure the effectiveness of campaigns focused on driving direct conversions, such as sales or leads.
Is CPM a good metric for all types of ad campaigns?
CPM is a good metric for campaigns that are focused on generating impressions and building brand awareness, but it may not be the best metric for campaigns that are focused on driving direct conversions, such as sales or leads. In these cases, CPC may be a more relevant metric.
How can advertisers use CPM to optimise their ad spend?
Advertisers can use CPM to compare the relative cost effectiveness of different ad placements or targeting options. They can also use tools like Lunio to help prevent wasted ad spend on fake touchpoints and improve the performance of their campaigns.