What Is Cost Per Thousand (CPM)?
The cost per thousand (CPM) is a marketing metric used to price the cost of 1,000 ad impressions on a webpage. For example, if a website publisher charges $2.00 CPM, that means an advertiser would need to pay $2.00 for every 1,000 impressions of their ad. The “M” in CPM stands for the Latin word “mille,” meaning “thousands.”
CPM, or cost per thousand, is a marketing term that refers to the cost an advertiser pays per one thousand advertisement impressions on a web page. An impression is a metric that counts the number of ad views or viewer engagements that an advertisement receives.
CPM is just one of several methods used to price online ads; other methods include cost per click (CPC) and cost per acquisition (CPA).
Using CPM to price online advertising has some disadvantages, like incorrectly counting impressions due to duplicate views, ads that fail to load, and advertising fraud.
Why Is CPM Important?
In today’s digital age, online marketing is crucial and its various forms should not be overlooked. Cost per thousand (CPM) is a key metric because it compares the cost-effectiveness of different advertising options. It acts as a risk versus rewards calculator that tells users the cost of an advertisement directly, which then allows them to compare and contrast advertisement vehicles. In general, the lower a CPM is, the more practical an option it becomes. A lower CPM cost means less money needs to be spent to reach an audience of 1,000 people. Although this is not always the case, it is usually more beneficial to invest in an advertisement with a lower CPM.
Just because the CPM is lower or cheaper, it doesn’t mean that the advertising channel is the best option to go with. In some cases, low-priced CPM strategies are not worth it because the keywords you’re targeting aren’t being searched for often. That’s why keyword research is important when choosing advertising options; you want to go for quality over quantity. Another thing to keep in mind is that marketers use more than just CPM for advertising purposes.
How to Calculate CPM?
The cost per thousand impressions (CPM) of an advertisement is calculated by dividing the cost of the advertisement by the number of impressions it is projected to generate, multiplied by 1,000.
For example, if an advertisement costs $400 and is projected to garner 3,200 impressions, its CPM would be $125:
$400 (cost) / 3,200 (impressions) x 1,000 = $125 CPM
CPM vs CPC vs CPA
When it comes to choosing how to price website ads, there are multiple methods available, each with its purpose. Some methods will be more appropriate than others depending on the campaign goals and overall intent.
Cost per thousand is most effective when the advertising goal is to increase brand awareness. This is because the exposure from an ad placed on a high-traffic website will help promote a brand name or any particular message – whether or not anyone ever clicks on the actual ad.
The cost-per-click, method of pricing web ads is focused less on building brand awareness, and more so on the promotion of a particular product. This means that the advertiser pays every time that a website ad is clicked on by a visitor. The equation for CPC differs from CPM but is also simple
Price of Ad / Number of Clicks = CPC.
For example, if the price of the ad is $6750 and the number of clicks is 1350, then the CPC would be $5.
CPC is calculated differently than CPM, or cost-per-thousand-impressions, which is
You can also use the pay-per-click (PPC) method where advertisers are billed for each click.
CPA (Cost per Acquisition) is a metric used to price web ads. It only charges the advertiser when a visitor clicks on the ad and makes a purchase. This scenario is based on promoting a specific product or service, as opposed to creating brand awareness. The equation is simple:
Price of Ad / Number of Acquisitions = Cost Per Acquisition
For example, if the price of the ad is $300 and there are 15 acquisitions, then the CPA would be $20.