CPM: Understanding Cost Per Mille in Digital Advertising

CPM – or cost per mille – is one of the most universal metrics in digital advertising.

At its core, it’s quite simple. Yet, there is some nuance when you get into it that can make the difference between a highly profitable campaign and wasted ad spend.

In this post, we’ll go over the things you need to know about CPM so you can confidently use it as a metric and understand when not to use it.

What Is CPM (Cost Per Mille)?

Let’s get this out of the way real quick:

💰 CPM (Cost per Mille) is a pricing model that measures the cost you (as an advertiser) pay for every thousand impressions your ads receive.

It is a key factor in determining the revenue potential for publishers and can greatly impact their advertising earnings.

How Does CPM Work?

Forget equations; let’s simplify.

CPM is Cost per 1000 Impressions. That’s it.

Take a $5,000 campaign, 2,500,000 impressions. Crunch the numbers: CPM = $2. A mere $2 for 1000 impressions.

So in this example, the advertiser paid $100 for every 1,000 impressions generated by their campaign. The “M” in CPM stands for the Roman numeral for 1,000.

Is CPM a Good KPI?

CPM is one of the most common pricing models used in digital advertising and can be a good key performance indicator (KPI) to track campaign success.

And yes, as an eCommerce marketing agency, we often rely on this metric as well.

However, it is important to understand that CPM only measures impressions and does not account for other factors like engagement or conversions.

You can think of it as a rough estimation of how much your advertising reach costs.

While a high CPM shows that an ad is reaching a large audience, it does not necessarily mean the ad is generating leads or sales.

For advertisers focused on driving conversions, metrics like click-through rate (CTR) and cost per acquisition (CPA) may be more meaningful.

Overall, CPM is best utilized alongside other metrics to gain a holistic view of campaign performance. On its own, CPM simply indicates the cost efficiency of impressions.

However, when analyzed with engagement and conversion data, it can provide valuable insights into audience targeting, creative effectiveness, and media buying strategies.

Impressions vs. Page Views – The Difference

It’s important to understand the difference between impressions and page views when analyzing CPM.

An impression refers to each time an ad loads on a user’s screen. A single page view can generate multiple ad impressions, depending on the number of ads on the page.

Here are the viewability requirements from the Interactive Advertising Bureau for a view to count as an impression:

  • Pixel Requirement: Greater than or equal to 50% of the pixels in the advertisement were on an in-focus browser tab on the viewable space of the browser page.
  • Time Requirement: The time the pixel requirement is met was greater than or equal to one continuous second, post-ad-render.

Page views refer to the number of times a web page is loaded by users.

👀 What’s more important? Well, you’ll want to keep a close eye on both. But, in a CPM pricing model, you’re charged for impressions.

How Do You Calculate CPM?

We’ve already gone over this above but let’s formalize things a bit more. This is how CPM is calculated:

Cost of Advertising ÷ 1000 = CPM

Let’s walk through an example:

  • A campaign with a $5,000 budget resulted in 2,500,000 impressions
  • CPM = $5,000 budget / 2,500,000 impressions
  • CPM = $2

So the CPM for this hypothetical campaign is $2. That means the advertiser paid $2 for every 1,000 impressions generated.

There are also free online CPM calculators that can instantly compute the CPM of any ad campaign by inputting budget and impression totals. These tools make it easy to determine and compare CPM rates across campaigns.

how to calculate CPM - infographic illustration

Benefits of The CPM Model

CPM advertising offers several potential advantages for both publishers and advertisers.

The below graphic illustrates it well, but we’ll cover each in more depth in the following sections.

benefits of cpm model for your ads

Brand Reach and Recognition

With CPM pricing models, you only pay for impressions.

This allows them to maximize reach by getting ads seen by as many people as possible within your budget. Wide brand exposure can elevate recognition and awareness.

So, if we accept that there’s a benefit to people seeing your ads even if they’re not clicking on them (there is), CPM is a good way to make the most of that benefit.

Metrics

CPM provides a standard, understandable metric to track and optimize.

Impressions are clear, measurable units that can be easily analyzed and attributed. This allows for data-driven optimization of ad targeting, placements, creatives, etc.

Using impressions and a grounding metric allowed you to test other aspects of your advertising using a steady variable. For instance, you can see how a change in wording affects click-through rates per thousand impressions.

Budget Friendly

You only pay for the impressions you receive, so there is less risk of unexpected costs from clicks or conversions exceeding projections. This budget stability helps manage costs.

When you have a stable metric for impressions, you can work on optimizing your campaign’s CTR to lower costs.

In other words, you can work to increase the ratio of clicks to impressions, thereby increasing the effectiveness of your campaign while still maintaining control over your budget.

The more clicks you can squeeze out of your impressions, the bigger your ROAS will be.

Drawbacks of Using CPM

While CPM advertising can be useful in some cases, there are a few limitations to note:

  • No performance data – CPM only measures impressions. There is no insight into how many people actually engaged with the ads or converted.
  • Fraud risk – Ad impressions can be artificially inflated through bot traffic, tricking advertisers into overpaying. Viewability metrics help mitigate this. This problem isn’t as bad as it once was, though, since most platforms have implemented countermeasures for this tactic.
  • Branding focused – CPM campaigns are better for awareness than direct response. There is no guarantee impressions will convert to sales.

So while CPM advertising can drive reach, it should generally be combined with other models like CPC and CPA to optimize for performance.

The biggest drawback of using CPM is that it can be a huge drain for beginner advertisers.

⚠️ Be careful: If you’re not carefully optimizing your campaigns to account for the lack of other metrics, you may end up spending more than you anticipated with little return on investment.

How to Maximize Your CPM

Here are a few tips to help boost ad performance within a CPM pricing model:

  • Refine targeting – Use first and third-party data to focus impressions on your best-fit audience. The CPM model often pushes you into overly broad targeting, which is something you want to avoid as much as possible.
  • Test creative A/B test ad creative to determine which variants generate the most impressions. And don’t do this just once or a few times. Constantly test new creatives even if you find something that you think works. There’s always something that might work better.
  • Analyze by segment – Break down performance by geography, device, audience, etc to allocate the budget efficiently.
  • Set frequency caps – Limit how often users see your ads to improve relevance and avoid oversaturation. When you have a very low CPM it’s easy to get carried away and bombard users with too many ad placements. That’s a good way to become invisible.
  • Optimize towards conversions – Although you pay for impressions, still use engagement, click, and conversion data to refine strategy. Ultimately, you’re in a constant battle with your advertising platform — both trying to get the most value out of your budget.

Alternatives to CPM

Here are some popular alternative pricing models to consider:

Cost Per Action (CPA)

With CPA, advertisers only pay when users complete a specific action like a sale, signup, download, etc. This places the risk on publishers and more directly optimizes ads for conversions.

Pay-Per-Click (PPC)

PPC models like Google Ads charge advertisers for each click their ads receive. This incentivizes publishers to show ads that users find relevant enough to click on.

And, as mentioned previously, it’s not like you have to choose one or the other.

A good campaign will take advantage of various platforms and, in so doing, also take advantage of various different pricing models.

Frequently Asked Questions

Is a Higher or Lower CPM Better?

There is no universally “good” or “bad” CPM. The optimal CPM depends on your goals, targeting, and other factors. Generally, a lower CPM means cheaper audience reach. However higher CPM can signal premium inventory quality. 

CPM, like other pricing models, will be closely linked to the industry in which you operate and advertise. Demand, seasonality, and your chosen advertising platforms are just some of the factors that will affect CPM so you’ll have to work out what your target CPM should be on a case-by-case basis.

Why is CPM 1000?

The “M” in CPM stands for the Roman numeral M, which equals 1,000. So CPM rates reflect the cost per 1000 impressions. Using 1000 as a standard base allows for easy comparison across ad campaigns.

What is a Typical CPM Rate?

There is no single “typical” CPM rate, as it varies widely based on factors like ad targeting, quality, and medium. Online CPM rates range from $1 globally to $65+ for targeted ads, while print ads span $8-$43 depending on the publication. 

TV ads average around $25 CPM during primetime. Radio falls between $2-$8. Overall CPM rates often fall between $10-$30 for online and print and $20-$30 for TV, but can be higher or lower based on ad specifics.

Conclusion

While CPM advertising has its limitations, understanding cost per thousand metrics remains vital for digital marketers and publishers. When utilized strategically and analyzed holistically alongside other KPIs, CPM can be an efficient model for raising brand awareness and managing campaign budgets.

The key is to drill into performance segmentation, optimize towards engaging impressions that convert, and complement CPM with other pricing models that prioritize clicks and actions. Mastering the nuances of CPM will empower advertisers to maximize audience reach and brand lift.

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TGM has spent more than $300 Million across social & search advertising platforms. Let us help grow your business using the best, performance-based customer acquisition strategies. 

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1 Comment

  1. Des

    The CPA information at the end was actually really interesting. I’m assuming that it would be a good metric for a lead generation campaign

    Reply

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