- How does CPM work? (determining ad spend with CPM metric)
- Advertising CPM: how it is different from CPC and CPA
- Benefits of CPM in advertising for publishers and developers
- Why should advertisers use CPM (how CPM works)
- Summing it up
There are several types of pricing models for digital programmatic advertising and online advertising. They include CPI, CPC, CPA, and, of course, CPM (CPT) — the most popular method for pricing web ads that is used in digital marketing and display advertising.
CPM stands for “cost per mille”, where “mille” is a Latin word that stands for “thousand”. For every thousand impressions, advertisers pay publishers a certain amount of money. Let's find out how CPM rates are determined and what are the benefits of CPM strategies.
How does CPM work? (determining ad spend with CPM metric)
First, measure the total number of served ad impressions. Then, divide it by 1000. Now, divide the budget of your digital advertising campaign by that number.
Advertising CPM: how it is different from CPC and CPA
CPM is popular in Internet advertising because it is simple — users are not expected to do any actions, like click on online ads, install apps/buy something.
Cost per completed view implies that users should watch the online video ad till the end (entirely), only in this case it will be counted as completed.
CPT advertising: what’s this?
CPT advertising refers to the cost per thousand impressions. It is just another way to call this model (cost per thousand vs. cost per mille). Thus these two notions are interchangeable; these two are the same model used for measuring ad spending.
Cost per mille can be considered a more traditional pricing model and this is sometimes precisely what an advertiser needs, e.g for brand awareness campaigns. This is why programmatic buying most frequently deals with a CPM revenue model.
Cost per click and cost per action. CPC and CPA pricing models stand for cost per click and cost per acquisition respectively. Normally with CPC an advertiser or a marketer pays only for the number of clicks that the ad managed to generate.
In the CPA model, display advertisement is supposed to generate sales. For such campaigns, advertisers pay only when the transaction is made on the web page.
Benefits of CPM in advertising for publishers and developers
Let us now take a look at other online advertising pricing models and see how CPM is different from them.
CPM is preferable by publishers as with this online advertising model they don’t risk anything; ad revenue is counted after each ad serving.
- No additional efforts
It is easier to monetize inventory with the CPM model. CPM is simple, however, in order to serve advertisements on the CPM ad platform publisher’s ad inventory should reach a particular bar of daily user views.
- No need to gather website keywords
With CPM ads, publishers don’t even have to select keywords for their website targeting. Programmatic advertising is created so that it personalizes each impression for every viewer so keywords are not needed.
- Performance is easy to count
To calculate how much profit publishers can get by placing CPM ads, they can use different estimations — an average number of served ad impressions and daily-active-users count. The CPM rate is also indicative. Ads served on mobile devices have a lower CPM but still impeccable performance.
Why should advertisers use CPM (how CPM works)
So why CPM strategies are so frequently used in digital marketing? Here's what media buyers say:
- To raise brand awareness, recall, and get a high traffic
As we have already mentioned, using this method is a perfect strategy for building a strong audience and raising brand awareness. Cost-per-click campaigns, meanwhile, will better suit performance campaigns.
- To easily reach the right audiences
It is also a good move to use this model to build your target audience persona and introduce your brand to them.
- Marketing performance is easily measured
The success of the campaign can be measured using different metrics, but one of the most popular is CTR which stands for click-through rate. It is calculated as a percentage of people who clicked on your ad once they have encountered it. For example, 5 clicks from 100 display ad views on ad placement will give you 5% CTR, 8 clicks for 100 impressions gives 8% CTR, and so on. Same you can calculate for one million impressions.
- This common method is more affordable than CPC and CPA
Price per 1000 ad views is a model that can potentially generate more clicks and user actions than other models (for the same amount of money). The cost per impression is lower than the cost per click so companies pay less.
For instance, advertising costs $20 (CPM campaign), and the total value for pay per click campaign is $20 (for let’s say 50 clicks on the advertisement). As soon as you get 50 clicks the CPC campaign is finished. While it’s hard to predict how many ad clicks the CMP campaign will generate, theoretically you can get up to 1000 clicks on the ad for the same money.
Choosing advertising technology for a campaign
For programmatic advertising platforms like demand-side platform, it is easy to deliver the right marketing messages to the right users at the right site or app.
There are numerous reasons to run CPM campaigns on DSPs:
- It's easy to track ad performance — you can choose a period and see how many digital views you obtained during that time, how many clicks those generated, win rates, etc;
- There are plenty of formats available for cost per thousand (CPM) impression segment: banners, display ads, in-app and mobile ads, CTV, etc;
- Certain DSPs have specifically developed functionality that optimizes the total cost per mille.
How to optimize CPM impressions you bind on? (or, improving CPM rate for a CPM deal)
On SmartyAds DSP advertisers can set up a bid cap so that system will take it as a maximum bid threshold it never exceeds.
In addition to this, SmartyAds DSP has a feature called CPM optimizer. With this function activated, media buyers (advertisers) will receive more impressions for the same CPM. During the real-time bidding process, it learns the specifics of the purchased ad placements and the dynamics of the bidding process. It will automatically adjust the CPM bid price decreasing the price per each when possible (just for a sufficient optimal level to win the impression).
Summing it up
Whereas pay-per-click and pay-per-action are better suited for performance campaigns, CPM ad campaigns turned into the industry standard as they are winning for brand awareness and drawing in web traffic. The advertiser pays less, additionally, the CPM campaign itself can potentially generate more clicks out of 1000 impressions if the advertising offer is interesting to the users.
Start getting benefits from CPM campaign on SmartyAds DSP!
Irina Kovalenko, CMO of SmartyAds