The purpose of your advertising campaign determines the payment model. If you want subscriptions and sales, go for CPC and CPA. If you're after reach and brand promotion, choose CPM.
The latter option is the topic of our article, and we are here to supply all the details you may need for comfort work with this payment model.
What Is CPM Advertising
CPM means cost per millenium. If you’re still at a loss, mentally asking CPM what does it mean, or punching the query CPM what is into a search engine, give us a moment, and you’ll see your CPM advertising definition right here.
CPM, or Cost Per Millenium, is a payment model for one thousand impressions of one ad.
One of the main advantages is that advertising can reach a large audience, and with a low cost per thousand impressions, CPM can be cheaper than other payment schemes, such as for example, CPC and CPA.
CPM is also used to compare the effectiveness of advertising campaigns. The lower the CPM indicator, the better the advertising campaigns work, and the less money is spent on promotion.
How Is CPM Calculated
Your CPM advertising formula comin’ right up!
In calculating CPM advertising indicators, we use two digits:
cost of ad placement;
the approximate number of impressions the ad will receive.
For a better understanding of CPM marketing, we'll need a bright illustration.
You promote car repair services. Placing a CPM banner on a thematic website costs $2500 per month. The site's audience is approximately 500,000 visitors, but only 90,000 of them are your target audience.
In this case, your CPM equals:
$2500 ÷ 90,000 * 1,000 = $27.8
Advertising networks set the minimum CPM automatically based on the auction principle. This means that there is a floor amount of money the webmaster must pay for impressions, and the best advertising space (for example, top ranking in the search results or a banner in the right corner of the page) will be given to the affiliate who paid more.
You should know how to calculate CPM to choose the correct bid for contextual and targeted advertising. However, you don't have to do it manually: there are tools that can do it for you, for example, Clickz and CPM Calculators. There is also a CPM and CPC calculator, which can help you calculate the cost of impressions on Facebook and other social networks.
Marketing specialists evaluate the effectiveness of CPM by the CTR of the ad, that is, by how often the target audience clicks on the ad. You can calculate CTR using the formula: ad clicks ÷ impressions. For example, a banner that received two clicks for every 100 impressions has a CTR of 2%.
Who Should Adopt This Payment Model
The CPM payment model was initially used by traditional media: newspapers, magazines, television, and radio. On the Internet, CPM systems are used for:
contextual advertising on Google Ads.
targeted advertising on social networks;
advertising on websites (banners, video advertising).
A CPM banner is best suited for campaigns aimed at increasing brand awareness. In addition, marketing specialists use this model for:
bringing a new product or service to the market;
informing clients about promotions and changes;
announcing company-related events (a new department opening in a store).
Medium and small businesses rarely buy advertising based on the CPM model on Facebook because the CPM of an average banner costs $11.19. This price threshold exists because the platform has a high conversion rate, so it is more profitable to sell products through it rather than promote brands.
CPM on the Internet
The webmaster selects a site or advertising network where the campaign will be launched. The further algorithm can be found below.
If a specific platform is selected, the price of the banner is usually fixed.
If an affiliate chooses an advertising network or launches a campaign on social networks, they configure the necessary ad parameters in their personal account: text, images, targeting settings, and other details.
Some platforms allow you to change CPM rates. In such cases, the webmaster indicates the price they are willing to pay per thousand impressions;
The platform determines the advertising display activity based on the specified parameters and CPM rate. The higher the CPM, the better positions your ad will receive.
Features
If you use CPM, keep in mind that only ad impressions are paid. You don’t have to pay for clicks from the advertising network, nor do you have to pay for conversions. This is the main feature of the model, but there are other parameters that distinguish CPM from CPC and CPA:
The reach of CPM advertising is greater than that of other models, so affiliates must set the target audience parameters as accurately as possible. This is necessary to show the ad only to potential clients and not waste advertising money on users who do not pertain to the target audience;
The advertising budget is calculated depending on the reach of the platform. The more people visit a web resource, the faster the ad gets a thousand views;
Typically, CPM is not used to increase sales or subscribers. According to the CPM model, advertising campaigns are launched to increase brand awareness.
Factors
CPM is calculated individually and is influenced by several factors:
The niche of the site and its audience. There are niches with high value, such as financial news. Sites in this niche sell ad impressions for more than low-value niches like gardening or fishing. The value of a niche is determined, as a rule, by the social status of its audience. Sites dedicated to financial and business news (Forbes, Bloomberg, and other similar sites) are usually in the top niches with high value. This is due to the fact that the audience of such sites largely consists of those involved in business;
Ad format, size, and visibility. The most expensive place to place a banner is considered to be the top area of the web page. Such a banner always falls into the user’s field of view, and banner blindness works worse here;
Advertising network. For example, on Facebook, product promotion with the CPM model costs more than on Google Ads;
Country and region where the product is promoted. Tier-3 has a higher CPM price than Tier-2 and Tier-1, and in Switzerland, the average cost per thousand impressions is three times higher than in the US.
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