Understanding CPM Advertising

If you are a small business owner and you’re planning on purchasing online advertisement for the first time, you may come across some unfamiliar terms or acronyms, such as CPM. It’s important to learn more about CPM advertising so you know where your advertising dollars are going.

There are various types of advertising pricing models out there, but CPM advertising is the most common form that media firms offer. Marketing experts use CPM to calculate and compare the costs of a marketing campaign and to assess the cost effectiveness of said campaign. CPM advertising is used across all types of media, including television, print and web.

What is CPM?

CPM stands for cost per mille, ‘mille’ being the Latin word for thousand. So CPM literally means cost per thousand, taking into account the cost to have 1,000 potential customers view, read or listen to an advertisement (impression). Impression refers to the number of times an ad is displayed to a viewer. CPM is the closest online advertising method to those that traditional media offers, such as television, radio or print, which sell advertising on the basis of estimated viewership, readership or listenership. With CPM, advertisers and publications are provided the ability to compare the prices of different campaigns across different media.

How is CPM Tracked?

In traditional media, metrics such as circulations, subscribers and Nielsen ratings are used to calculate projected CPM. This is because exact numbers cannot be predicted when it comes to radio, TV and print ads. Ads that run on TV and radio stations may do so at times when the kind of viewers and listeners you want are not even tuned in. Likewise, there’s no way of guaranteeing that if a publication prints and distributes 50,000 copies that all those copies will be picked up and read by people. However, it’s somewhat easier to track CPM in web advertising, wherein Internet marketers can get traffic analysis data from website administrators in order to calculate CPM and other related metrics.

How is CPM Calculated?

Calculating CPM is simple: divide the cost of the advertisement by the number of viewers broken down by thousands.

(Total number of impressions / 1000) * CPM = Total cost of campaign

For example, your campaign goal is to purchase 100,000 impressions at a $15CPM, then your equation will look like this:

(100,000 / 1,000) * 15 = $1,500 Total cost of campaign

Here’s a great tool for calculating CPM.

CPM rates can vary from less than one dollar to hundreds of dollars. This is due to the fact that audience make-up from one site to another can vary significantly. If your website caters to a targeted group of people, you can command higher CPMs. On the other hand, if your website offers access to general audiences, you can only command lower CPMs.

Will CPM Work for Me?

Ben Fisher of TheHostingNews.com states that CPM is a highly relevant metric in today’s Internet economy, and that it is still the most widely used statistic when it comes to display advertising. However, CPM advertising, as with many things in life, is not one-size-fits-all. In order to determine if CPM is the best method for your marketing campaign, you first need to identify your goals. CPM advertising is commonly used for:

  • Direct ad sales
  • Branding campaigns which aim to raise/increase awareness of a company or product/service

CPM is more suitable if the keywords you wish to use are very popular, thus very expensive.