What is CPM (Cost Per Impression): definition, examples, and formula
Online advertising strategies need sizable expenses. CPM, combined with CPC (cost per click), CTR (click-through rate), and other metrics, is the most effective way to measure the success of lead generation efforts marketers have already made.
What is CPM in marketing?
Cost per impression (CPM) is one of the metrics aimed at demonstrating the effectiveness of online marketing campaigns. The lower the CPM rates, the more effective and optimized the marketing campaign is.
CPM abbreviation can be interchangeable with cost per mille. With the help of this metric, you can calculate the costs for each thousand (from the Latin word – mille) advertisement impressions. The appearance of each ad is measured as one impression. If advertisement displays are counted on the CPM basis, an advertiser has to pay for each thousand ad views.
CPM helps keep an eye on expenditures carried forward in terms of such digital campaigns as:
- Google Adwords;
- Facebook Ads;
- Linkedin Ads.
In 2019, the highest CPM was offered by Facebook. Other social networks are presented below in the graphic.
Main purposes of CPM
CPM helps to:
- analyze the viewership generation;
- compare costs between different media resources;
- plan new stages of marketing campaigns;
- estimate the results of past ad displays.
The pricing model of CPM is very similar to printable ad sales. There is a fixed price for the agreed number of ad displays. CPM formula allows marketers to pick sides with the desired monthly (quarterly, yearly) advertising costs. It’s presented below:
CPM = Total Amount Spent / Total Measured Ad Impressions х 1,000
It means that the CPM rate is formed using the proportion of a fixed sum on a set of ads and the number of times the advertisement was shown on the page. It’s necessary to make the result a thousandfold and take it into account for new campaign planning.
With the help of this formula, both the total cost of the advertising campaign and the quantity of desired impressions can be counted. You only need to modify the original formula:
Total Amount Spent = Total Impressions / 1,000 x CPM
Total Impressions = Total Amount Spent / CPM x 1,000
Let’s take a look at one of the examples. An advertiser wants to stay within a $200 budget and get 10 thousand ad views on the top-ranking online media resource. The computation will be the following:
CPM = $200 / 10,000 х 1,000
CPM = $20
It means that one thousand advertisement displays will cost $20.
The next example will show how to calculate the total number of impressions if the digital marketing campaign cost and CPM rate are fixed. A marketer counts on a $300 budget. They are ready to pay $20 for one thousand impressions. The total number of ad views will be next:
Total Impressions = $300 / $20 х 1,000
Total Impressions = 15,000
CPM for email marketing
It’s worth noting that CPM is used not only for social media advertising campaigns and marketing strategies for Internet promotion. It can also be an essential part of email marketing pricing.
In email marketing, CPM stands for the cost per one thousand email messages sent. It should be noted that this also often covers license fees, image hosting, and other services. An example of CPM calculation for $100 budget and desired 5 thousand impressions is the following:
CPM = $500 / 20,000 х 1,000
CPM = $25
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CPM vs. CPC comparison
CPC is a pricing model when an advertiser pays for each ad display. It means that user actions are more important. Marketers don’t need to pay for advertisement impressions if website visitors don’t click the offered ad.
Although CPC is meant as a more profitable pricing advertising model, it’s not free from shortcomings:
- a less-than-attractive ROI (return on investment)
- rather varied CPC charges
As compared to CPC, CPM is suitable for many marketing strategies. It’s recommended to use the CPM pricing model if:
- an advertiser expects a desired CTR on the advertisement
- the launch of the new project, service, or product takes place
- marketers aspire to build budget-friendly brand recognition
Most marketers tend to believe that CPC and CPM rates should be as low as possible. In this case, the advertising campaign might not meet the expectations and efforts that need to be made.
But it’s worth pointing out that there is a range of marketing campaigns with lead generation aimed to get CLV consumers (with high customer lifetime values). This kind of situation deserves individual attention and expenses.
Wrapping it up
The main idea of CPM is to demonstrate the cost-effectiveness of ads shown on different online resources. To find the optimal platform with the target audience and low CPM rates, it’s recommended to use the split-testing method. Plan your digital marketing campaign so that two or three advertisements will be shown on different websites simultaneously.
It’s reasonable to compare results after receiving 3-5 thousand impressions. A marketer should take into account the CPM rate and profitability of the ad view.