What is CPM in advertising? There are several types of pricings designed for digital programmatic advertising and online advertising in general. They include CPI, CPC, CPA, and, of course, CPM (CPT) - the most popular pricing model for ad buying.
It is an abbreviation for “cost per mille”, where “mille” is a Latin word that stands for “thousand”. This basically means that the cost of CPM advertising is calculated based on measured impressions. For every thousand impressions, advertisers pay publishers a certain amount of money. Let's find out how CPM rates are determined.
How does CPM work
It is easy to calculate how much should advertisers pay using the cost per thousand impressions model.
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.
Further on we will discover how to find out what CPM cost is optimal to get a high ROI. We will also discover how to find out how many viewable impressions it is possible to obtain with a certain ad budget.
CPM revenue model is one of the most preferable for online advertising because it is simple.
But how to calculate the number of ad impressions? Is it the same thing as page views? Usually, yes, but not always. For example, there is the same banner ad or two different banner ads located on the page from the same advertiser. In both cases, the media buyer will pay for two ad impressions when they are served (even though the page will only load once so there will be a single page view by the one user).
Advertising CPM model: how it is different from CPC and CPA
CPM is so popular in Internet advertising because it is simple - users are not expected to do any actions - click on the online ads, install the apps/buy something. With CPM they only need to view ads.
Cost per view. 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. Cost per engagement has a similar logic because it counts if the users clicked on the ad, participate in the mini-game, take a survey, or else.
CPT advertising: what’s this?
CPT advertising is the same as CPM - 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 or cost per thousand impressions can be considered a more traditional pricing model and this is sometimes exactly what 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 per only when the transaction is made on the page. Reaching high conversion rates is very important for such performance campaigns.
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.
Cost per thousand impressions is preferable by publishers as with this online advertising model they don’t risk anything - ad revenue is counted after each ad serving. In this case, it is not the publisher’s task to engage users to click on ads or to trick them into it.
No additional efforts
It is easier to monetize inventory with cost per thousand impressions model. CPM cost per mille is simple, however, in order to serve ads on the CPM ad platform publisher’s ad inventory should reach a particular bar of daily user views. Every platform has different requirements regarding an essential number of visits.
No need to gather website keywords
With CPM cost per mille 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
In order to calculate how much profit publishers can get by placing cost per thousand impressions ads, they can use different estimations - an average number of served impressions, daily-active-users count. Plus, these metrics can be combined with specific ad network metrics, such as eCPM.
Why should advertisers use CPM
Once we’ve discussed several obvious benefits of CPM campaigns for publishers, some might think that there is no use for an advertiser to set a CPM-based campaign. Why? Because impressions are not so indicative as clicks, installs, and acquisitions. To check if this is true, we should now look at the CPM campaign from an advertisers’ point of view.
To raise brand awareness and recall
As we have already mentioned, using CPM is a perfect strategy for building a strong audience and raising brand awareness. Once a new business has been set up, it is essential to introduce it to users, make the brand known and build trust with potential customers. Cost per click campaigns, meanwhile, will better suit performance campaigns. Building brand awareness first is strategically a better move than racing for purchases from day one. And this is exactly the situation when advertising CPM pricing will be an ideal model for advertisers.
To easily reach the right audiences
It is also a good move to use cost per thousand impressions model to build your target audience persona and introduce your brand to them. You can try different demographic groups, such as millennials or seniors, by placing an ad on targeted websites. Then, if you measure and compare engagement on both sites, you can adjust your strategy accordingly and proceed with your marketing, without spending much money on research.
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 percent of people who clicked on your ad once they have encountered it. For instance, 5 clicks from 100 impressions will give you 5% CTR, 8 clicks for 100 impressions gives 8% CTR, and so on. You can also count sales and other types of engagement to build credible statistics and make CPM work for you.
CPM is more affordable than CPC and CPA
Cost per thousand impressions is a model that can potentially generate more clicks and user actions than other models (for the same amount of money). The cost per impressions is lower than the cost per click but that’s not all.
Let’s imagine that a thousand impressions CPM campaign costs $20 and the total cost for pay per click campaign is $20 (for let’s say 50 clicks on the ad). As soon as you get 50 clicks the CPC campaign will be 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 (if the offer is very interesting to the users).
Choosing advertising technology for CPM campaign
Digital advertising and marketing cost per impression campaigns today enter a new era when it is possible to automate every process. For programmatic advertising platforms like demand-side platform, it is easy to deliver the right ads to the right users at the right gadget - they work according to the targeting criteria selected by advertisers (which involve the age of the viewer, geolocation, OS, gadget type, model, and more important criteria).
There are numerous reasons why advertisers prefer to run CPM campaigns on DSPs:
- It's easy to track advertising performance - you can choose a period and see how many impressions you served during that time, how many clicks those generated, win rates, etc.
- There are plenty of formats available for campaigns in cost per thousand (CPM) impressions segment: banners, display ads, in-app and mobile ads, digital video advertising, programmatic TV advertising (CTV), and more.
- Certain DSPs have specifically developed functionality that optimizes cost per mille for advertisers, which prevents ad budget overspending.
How to optimize CPM impressions you bind on? Speaking of CPM optimizer capacities of the programmatic platform - on SmartyADS DSP advertisers can set up a bid cap so that system will take it as a maximum bid threshold it never exceeds. This is an essential campaign setting that effectively saves ad budgets and optimizes pricing per thousand impressions.
In addition to this, SamrtyAds DSP has a feature called CPM optimizer. With this function activated, advertisers are able to receive more impressions for the same CPM cost. During the real-time bidding process, it learns the specifics of the particular inventory source and the dynamics of the bidding process for it. As a result, it will be automatically adjusting the CPM bid price decreasing cost per each when possible (just for sufficient optimal level to win the impression).
Summing it up
CPM is a basic metric for measuring ad revenue for every thousand impressions. Whereas pay per click, pay per action, and other models are better suited for performance campaigns cost per thousand impressions is the most winning pricing model for brand awareness campaigns. The cost per impression is generally lower than per action or click, additionally, the CPM campaign itself can potentially generate more clicks out of thousand impressions if the advertising offer is interesting to the users.
If you think that CPM advertisement is the right choice for your branding ad campaigns, you might wonder how can one start a successful CPM campaign? At SmartyAds, we have an effective demand-side platform solution for advertisers and a supply-side platform for publishers. Just a few clicks and you can start your own CPM ad campaign of effective monetization.
Start getting benefits from CPM ad campaigns on SmartyAds DSP!
Irina Kovalenko, CMO of SmartyAds