Glossary - Cost per Mille (CPM)

CPM definition

Mille is Latin for one thousand, so cost per mille (CPM) means cost per thousand. In the context of advertising, cost per mille is the cost to get one thousand ad impressions.

As a marketer or advertiser you need to know that the ad campaigns you run are having an impact. There are a number of metrics you can use to assess this, including cost per mille. Understanding cost per mille helps you assess which ad placements are increasing your reach and which are draining your budgets.

What is CPM?

CPM, meaning cost per mille, is an important metric in digital advertising. When you know how much you pay for your advertising impressions, you can focus on the campaigns that genuinely raise brand awareness without paying a fortune.

For example, if you're advertising an app that helps other businesses connect with logistics partners, you might have ads on YouTube, LinkedIn, and on other websites via Google AdSense. Your business pays ad publishers (like Google) to host these ads. While some publishers charge advertisers per click, others may offer 'pay per 1000 impressions' pricing model.

CPM in online advertising

The CPM metric allows you to assess how many impressions you gained from each of these ads and what that cost you. Your logistics app ads might be a big hit on LinkedIn, but flop on less business-oriented social media platforms. Knowing this helps you channel your budgets accordingly, or even save money to drive back into research and development (R&D), sales, or other aspects of digital marketing.

Ad impressions explained

Ad impressions are not the same as clicks. The cost-per-click model means you're assessing your success solely on whether a customer interacts with an ad. Conversely, CMP represents every view, no matter how fleeting. If your ad pops up when someone is viewing that page, then it counts as an impression. If the ad receives a click, share, or other interaction, even better.

There are some concerns among marketers about fake impressions, which occur when automated bots or non-human traffic create fraudulent impressions, leading to wasted budget. To mitigate this, many advertisers use verification tools or partner with reputable ad networks to ensure their ads reach real users.

Calculating CPM advertising costs

To calculate CPM, campaigns must be carefully monitored and tracked. After all, you want to know the cost per thousand impressions, so if you don't know when you've reached your "mille" mark, you can't calculate this.

Depending on the ad network you choose, you should have a platform or associated piece of software that allows you to track impressions. Ads posted via the Google display network (Google AdSense, YouTube, and other Google platforms) are tracked using the Google Ads dashboard. Here, marketers can see numerous metrics, including CPM.

However, as long as you can track how many impressions a campaign has racked up, the calculation for CPM is pretty simple:

CPM = (cost of campaign/number of impressions)x 1000

If 100 people look at an ad, and that costs you $5 in ad spend, then the CPM is $50.

The first part of the calculation tells you how much each individual impression costs. Multiplying it by one thousand gives the cost per mille. You can then compare CPMs of different campaigns, figuring out which are helping grow your business and which are less effective. Use this data to streamline your advertising inventory — the collection of ads at your disposal.

Remember, the higher the CPM rates, the less effective the advertisement is. Low CPM ads are the ones you want to replicate.

How much do advertisers pay for online advertising?

Advertisers pay varying amounts depending on where an ad appears and the popularity of the keywords involved. When calculating CPM, pricing structure is important to understand. If you don't know exactly how much your ads cost to launch, you'll struggle to calculate meaningful metrics.

Different ad formats that you can use the CPM for include:

• Social media advertising
• Website banner display advertising
• PPC (pay-per-click) ads in a range of locations
• All types of programmatic advertising — the automated buying of ad space on various platforms

The advertiser pays the publisher usually once the ad is live and people are clicking through. Many advertising platforms don't charge until a viewer clicks an ad, which is why another important metric is the click-through rate (CTR).

Why should you use the CPM strategy?

Using cost per mille as a primary metric for advertising and marketing campaigns has a number of benefits, but a couple of drawbacks, too.

• The CPM model measures all impressions, not just clicks, to help you understand the total reach of an advertising campaign
• CPM helps you understand if your brand recognition is growing
• CPM can be used for any ad campaign across multiple ad networks
• However, CPM doesn't highlight the quality of impressions and interactions with online ads

Of course, you should combine CPM with other metrics like cost per click (CPC) and cost per action (CPA) for a well-rounded understanding of your ads on your web page, social media sites, and other platforms.

Also read about other pricing models, such as CPC (Cost per Click) and Cost per Acquistion.