Your Guide to CPM Marketing
What does CPM stand for?
CPM stands for cost per thousand impressions. Many unfamiliar with digital marketing terminology find the CPM marketing abbreviation confusing. The confusion is the result of the “M” which stands for “mille”, a Latin term for thousands.
What is an impression?
An impression can be a confusing metric in digital marketing. Interestingly, many marketers get the exact definition of an impression incorrect when asked. An impression is simply an opportunity to see an ad. It does not necessarily mean a user actually sees the ad.
Let’s look at an example. Suppose you visited the website for your favorite newspaper. On the homepage is a series of pop-up ads and banner ads. Each of these ads are serving you one impression because they each have an opportunity for you to see them. However, what if you click an article link on the newspaper’s homepage before reading the any of the ads? In this instance, each ad still served you one impression even though you didn’t read them.
What does CPM mean?
The definition of cost per thousand, or CPM, is the cost a publisher or ad network charges advertisers to serve users 1,000 impressions of an ad. It’s a common quantity of online ad inventory the industry uses to price media purchases. For example, companies wanting to show a digital ad to large numbers of users will negotiate the cost per thousand with an ad network.
CPM marketing is one of the most popular pricing models used in the digital marketing industry. It’s simple and can be cost-effective for certain types of marketing goals.
What is the CPM formula and how is CPM calculated?
When answering the question “what does CPM mean in advertising?” it is important to know how cost per thousand marketing works. We mentioned above that the CPM definition is the cost per thousand impressions. To calculate the cost per thousand impressions, we will compute the cost of one impression and then multiply that cost by 1,000. Let’s look at the full formula below.
In our cost per thousand formula, we divide the total cost paid for a specific quantity of impressions by the total number of impressions. This gives us the cost for one impression. Next, we multiply this cost by 1,000, which results in the cost for 1,000 impressions (CPM). This formula will make you a CPM calculator in no time!
How do marketers use CPM?
CPM is primarily used by marketers as a way to quickly compare costs for buying online ad inventory. It is an industry standard that allows for easy cost comparisons.
Let’s look at an example. A digital marketer wants to run an ad campaign and gets a proposal from two ad networks. The details of the proposals are below.
One ad network is offering our digital marketer 1 million impressions for $10,000. The second ad network is offering 1.5 million impression for $13,000. It’s difficult to compare these two options because each ad network is offering a different quantity of impressions. Cost per thousand allows for a simple comparison. Using our CPM formula, let’s ad in the CPMs for each of these two ad network options. See below.
We can now compare these two proposals because our CPM formula shows how much each ad network is charging for the same quantity of impressions. In this case, ad network 2 is charging less for the same quantity of impressions.
Note that this example is to illustrate why CPM is an important metric—it allows for comparison and is a benchmark when buying media. Most media companies and ad networks will provide marketers with bids in a CPM format. Marketers then can compare and negotiate on a CPM basis.
What is a good CPM price?
Not all impressions are created equally. Marketers may be willing to pay more for impressions that are specifically targeted to key customer groups. A marketer promoting an end-of-year car sale is likely not interested in purchasing ad impressions for teens without driving licenses. Thus, marketers refine the audience receiving ad impressions. This process narrows the available inventory of ad impressions, and causing CPMs to increase.
Generally speaking, a $3 - $5 CPM is a typical price for broad, very general impressions. Customers in these broad audiences are generally not targeted and could include a wide variety of demographics and psychographics. Highly targeted impressions, on the other hand, can range from $30 - $100.