What is a CPM? Interesting fact - CPM stands for Cost Per Mille
Agencies, advertisers and marketers buy impressions, thus they would use CPM as a cost of the media they are buying; publishers or creators sell ad space to ad networks (e.g. Google Adsense), so they would use CPM to work out the amount of revenue they are generating per one-thousand impressions. This is sometimes called RPM (revenue per thousand).
CPMs are either static, i.e. agreed upon between the digital marketer and a publisher or network at a fixed cost, or variable (often referred to as eCPM) if buying in a real time auction process (programmatically).
As impressions are usually served in their thousands or sometimes millions, the cost per one impression is not worth understanding. Digital marketers have standardised this into a CPM or cost per thousand metric as it's typically a far easier number to understand and visualise.
To calculate CPM, you will need the following metrics:
2. Ad spend
Buying media on different sites and platforms, across different formats sizes and using multiple data sources all impact the price you pay as a buyer for one thousand impressions. These variables are why some CPMs are higher than others.
A higher CPM does not necessarily mean a bad one, and a low CPM does not always signal a great ad buy. When deciding how much you are willing to pay for the media, think back to the brief, the goal of the campaign and your brand’s positioning.
For example, if you are promoting a luxury brand that wants to be seen on big impactful formats, then paying higher CPMs of $15-20 makes sense. If you were the same brand and were buying at $2.50 CPM, then your brand’s communications may not be appearing in environments that reflect the brand’s premium positioning or be targeting the audience you wish to be reaching.
For branding campaigns, higher CPMs are usually paid for better quality, viewable, more on-target impressions using larger formats. For performance campaigns, the lower the CPM combined with a lower CPA or higher conversion rate are usually prioritised as the goal is to drive the most efficient sales or conversions.
If you are running B2B campaigns, the target audience is typically much harder to reach, and thus more valuable to you as a buyer. This means you will usually pay far higher CPMs compared to in B2C campaigns.
In programmatic campaigns (using a DSP or a self-serve platform such as Facebook's or LinkedIn's), the CPM of your media may be variable. This is referred to as eCPM or the effective CPM.
As these ads will be bought in real-time, using a bidding model rather than agreeing with a publisher up-front on a fixed price, you will have to monitor the CPMs to ensure your campaign is not becoming ineffective.
A reason for an increase in CPM may be based on more competition coming into the market bidding for the same impressions as you. A classic example of this is around key holiday periods, such as Christmas. CPMs usually increase dramatically, even for exactly the same formats and targeting you were buying weeks before.
A buyer or trader may wish to manually increase the CPM to ensure they are winning enough bids for the impressions they want. For example, if you wanted to increase the campaign's viewability, you would have to increase your bid to ensure you are winning more bids for impressions that are more likely to be served in-view. The same can be said for performance campaigns, whereby you may want to pay more for additional data that may improve your conversion rate or lower your CPA.
The buying metric you should use will be determined by the goal and objectives of your digital advertising campaign.
CPM: if you are running a brand campaign, we would recommend to use CPM as you will be able to be more targeted in the ads that are served and will know how much of your target audience you have reached.
CPC: should be used if you want a fixed number of users to click a link. This is typically used in performance campaigns if your goal is to increase site traffic. This means you only pay for the action you want the user to make.