Definition

Cost per thousand (CPM) is a metric used in advertising that represents the cost an advertiser pays for one thousand impressions or views of their ad, where an impression is each time the ad is displayed to a user on a webpage or app.

Description

Cost per thousand (CPM) is a standard advertising metric used to measure the cost-effectiveness of an advertising campaign. It refers to the cost an advertiser pays for every thousand impressions of their ad.

An impression is counted when an ad is displayed to a user on a webpage or app.

The CPM model is commonly used for online display advertising, such as banner ads, where advertisers pay for the number of times their ad is shown on a website.

However, it can also be used for other types of advertising, such as television commercials, where advertisers pay for the number of times their commercial is aired.

The formula to calculate CPM is as follows:

CPM = (total cost of the ad campaign / total number of impressions) x 1000

For example, if an advertiser spends $1,000 on an ad campaign that generates 100,000 impressions, the CPM would be $10. This means the advertiser is paying $10 for every 1,000 impressions of their ad.

CPM is a valuable metric for advertisers to evaluate the cost-effectiveness of their campaigns, as it allows them to compare the cost of reaching their target audience across different advertising channels and campaigns.

It is also commonly used in programmatic advertising, where advertisers bid on ad impressions in real-time based on CPM, allowing them to optimise their spending and target specific audiences more effectively.

Importance of Cost Per Thousand (CPM)

Cost Per Thousand is a popular advertising metric used to calculate the cost of displaying an advertisement to a thousand people. It is essential for several reasons:

1. Comparison of advertising costs: It provides an easy way to compare the cost of advertising across different platforms or campaigns. By comparing it for different ads, you can identify which platforms or campaigns provide the best value for your money.
2. Budget optimization: It allows advertisers to optimise their budget by identifying the most cost-effective platforms or campaigns. Advertisers can maximise their ad reach while minimising costs by focusing on platforms or campaigns with the lowest CPM.
3. Planning and forecasting: It helps advertisers plan and forecast their advertising costs. Advertisers can create realistic budgets and set achievable goals by estimating the CPM for different platforms or campaigns.
4. Target audience analysis: It can be used to analyse the effectiveness of targeting specific audiences. By comparing the CPM for different target audiences, advertisers can identify which audiences are most cost-effective and adjust their targeting accordingly.

Future Strategy to Improve Cost Per Thousand

Here are a few strategies that can be implemented to improve Cost Per Thousand in the future:

1. Improve targeting: One of the most effective ways to improve it is to improve targeting. By targeting the right audience, advertisers can increase the likelihood of conversion, which can lower the CPM. To improve targeting, advertisers can use data analytics to understand their audience’s behaviour, preferences, and needs and then tailor their ad campaigns accordingly.
2. Optimise ad creative: Ad creative plays a significant role in determining the CPM. Poor ad creativity can result in lower engagement rates and higher CPM. Advertisers should aim to create visually appealing, relevant, and compelling ad content that resonates with their target audience.
3. Utilise retargeting: Retargeting campaigns effectively reach people who have already shown interest in your product or service. Retargeting can reduce it by increasing the chances of conversion.
4. Test different platforms: Not all advertising platforms perform equally well. Advertisers should test other platforms to determine the best value for money regarding CPM. Facebook, Google, and Instagram are some popular platforms to consider.
5. Monitor and adjust bidding strategies: Advertisers can optimise their bidding strategies to achieve a lower CPM. This can be done by setting bidding rules, using automated bidding strategies, and adjusting bids based on real-time performance data.

How to calculate Cost Per Thousand?

The formula to calculate Cost Per Thousand is:

CPM = (Cost of Ad Campaign / Total Impressions) x 1000

To calculate CPM, you need to know the total cost of the ad campaign and the total number of impressions.

Here’s an example of how to calculate CPM:

Suppose an advertiser spends $1000 on a Facebook ad campaign receiving 100,000 impressions.

CPM = (1000 / 100,000) x 1000 CPM = 10

So, the CPM, in this case, is $10, which means it costs the advertiser $10 to show their ad to one thousand people.

Note that the CPM formula assumes that an ad campaign is measured in impressions, which means the number of times an ad is displayed to a user, regardless of whether they click on it.

Benefits to know Cost Per Thousand

Knowing it can provide several benefits, including:

1. Budget optimization: It helps advertisers optimise their budget by identifying the most cost-effective platforms or campaigns. Advertisers can maximise their ad reach while minimising costs by focusing on platforms or campaigns with the lowest CPM.
2. Comparison of advertising costs: It provides an easy way to compare the cost of advertising across different platforms or campaigns. By comparing the CPM of different ads, you can identify which platforms or campaigns provide the best value for your money.
3. Planning and forecasting: It helps advertisers plan and forecast their advertising costs. Advertisers can create realistic budgets and set achievable goals by estimating the CPM for different platforms or campaigns.
4. Target audience analysis: It can be used to analyze the effectiveness of targeting specific audiences. By comparing the CPM for different target audiences, advertisers can identify which audiences are most cost-effective and adjust their targeting accordingly.
5. ROI measurement: By knowing it, advertisers can calculate their Return on Investment (ROI) for their ad campaigns. ROI is calculated by comparing the cost of the movement to the revenue generated by the campaign.

Example

Let us assume, a brand called “ABC” runs a digital ad campaign on Facebook in India. The campaign has a total budget of INR 50,000 and receives 500,000 impressions.

To compute it for this campaign, we can use the following formula:

CPM = (Cost of Ad Campaign / Total Impressions) x 1000

Plugging in the values, we get:

CPM = (50,000 / 500,000) x 1000 CPM = 100

Therefore, the CPM for this ad campaign is INR 100.

This means that for every thousand impressions of the ad, the brand had to spend INR 100. Knowing that it can help the brand optimise its budget, compare the cost of advertising across different platforms, and plan and forecast its advertising costs.

FAQ

What is Cost Per Thousand (CPM)?

It is a marketing term that refers to the cost incurred by an advertiser for displaying their ad to one thousand users or viewers.

How is CPM calculated?

It is calculated by dividing the total cost of the ad campaign by the total number of impressions and then multiplying the result by 1000.

What is an impression in advertising?

An impression is counted every time an ad is displayed to a user, regardless of whether or not the user interacts with the ad.

Why is CPM critical?

It is critical because it helps advertisers optimise their ad campaigns, reduce costs, and improve their return on investment (ROI).

How can CPM be reduced?

It can be reduced by improving targeting, optimising ad creative, utilising retargeting, testing different platforms, and monitoring and adjusting bidding strategies.

Is a lower CPM always better?

Not necessarily. A lower CPM may indicate that the ad campaign is cost-effective, but it may also mean that the ad needs to be seen by the right audience or that the ad needs to be more engaging. The ultimate goal should be to balance it and ad performance.

Can CPM be used to compare the cost of advertising across different platforms?

Yes, it can be used to compare the cost of advertising across different platforms or campaigns, as long as the measurement method for impressions is consistent.