Cost Per Thousand Impressions (CPM)
CPM stands for cost per thousand impressions, also known as cost per mille. CPM is used in digital advertising to determine the cost an advertiser pays each time an ad gets served 1,000 times.
CPM is different from CPC, cost per click, which is priced based on the number of clicks an ad received as opposed to how many times it was shown.
In online advertising, a company that sells its banner ad space will charge a fixed price each time it shows a banner ad 1,000 times. CPM prices can vary based on audience competitiveness, industry and placements.
Furthermore, click-through rate (CTR) is used to measure the success of CPM advertising as it helps the advertiser understand what percent of people who saw the ad clicked to get to a landing page or website.
How to calculate CPM
CPM = (advertising cost) / (impressions generated) x1000
CPM is calculated by dividing the total ad cost by the number of impressions received on a promotion, such as a banner ad. For example, if the total cost spent on an ad was $7,000, and the total impressions generated were 800,000, the calculation would go as follows:
($7,000/800,000) = $0.000875. Then multiplying this number by 1,000 (meaning per thousand impressions)
$0.000875 x 1,000 = $8.74.
This means that the ad campaign’s CPM equals $8.74.
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Impressions vs. pageviews
An impression measures the display of an ad on a web page, while pageviews indicate how many times a page was viewed. It is common for more than one ad to be shown on a single page view. Each ad impression will be counted separately. In other words, there can be multiple ad placements on a website page and times in which an advertiser pays for multiple impressions during a single pageview.
In order to avoid low-quality impressions, which are due to ads failing to load, ad fraud or internet bots, there are ad servers that ensure page refreshers, or bots, do not skew the impression count. For this reason, the cost per thousand impressions metric has been criticized for counting impressions inaccurately and not being a straightforward measurement like CPC.
When to use CPM
Typically, CPC pricing models are used for more action-driven advertisements, aiming for immediate results with clicks to a website, registration page, and conversions. Advertisers with immediate response goals in mind like to pay on a CPC model because they only pay when a user clicks on the ad, which guarantees their budget will only go toward clicks and can more easily lead to a positive ROI.
On the other hand, CPM is excellent for reaching broader marketing strategy campaign goals, especially around brand recognition and awareness. For example, if a business wants to boost its brand or product perception, it can reach more people with images, slogans and a targeted message at a high volume and pay a fixed price to reach their audience.