How Important is CPM in Advertising?

by | Aug 10, 2022 | Analytics, Digital Marketing, Paid Search

CPM (cost per mille) advertising is a paid advertising option in which businesses pay a fee for every 1,000 impressions an ad receives.

The cost per thousand impressions, or CPM, is a formula that calculates the total ad spend for every thousand impressions on a web page or social media platform. An impression occurs in CPM campaigns whenever an ad successfully reaches the target audience.

What is CPM?

CPM is the amount advertisers pay to publishers for every thousand impressions an ad generates. This pricing model has a long history in online advertising and is the most common method for pricing web ads.

While mobile ads evolve beyond banners and static images to include interactive experiences, videos, and other media, the CPM model remains relevant in the mobile advertising world. To determine the cost-per-thousand views, you must multiply the total number of impressions by 1,000 then divide the campaign budget by that figure. This formula can assist you in determining how much to budget and the number of impressions you require.

How to Calculate CPM?

Calculating CPM happens by dividing the ad spend by the number of impressions multiplied by a thousand.

CPM = Ad spend / impressions * 1,000

The advertiser then pays a set fee to the website owner for every thousand impressions of their ads.

Since the beginning of online marketing campaigns, CPM remains one of top industry-standard pricing methods for determining advertising costs and ad pricing.

While campaign analysts and strategists now have a surfeit of data and metrics at their disposal to measure total impressions, digital views, user engagement, and ad effectiveness, industry-standard CPM has many advantages for advertisers looking to track the ad impressions of their ad inventory.

A CPM digital marketing campaign is a common method of raising a brand’s profile for advertisers who focus on brand visibility and brand awareness. 

Furthermore, it is not only a question of how many times their advertising inventory is successfully displayed but also of how many ad views they receive on any given web page.

For instance, a CPM strategy that works well for companies new to the market is to run a CPM campaign across multiple websites on both desktop and mobile devices to increase brand visibility and click-through rate.According to Microsoft, (provide a source) CPM campaigns are a good option for marketing professionals seeking brand awareness or reach when a goal is a large number of views or impressions of your ad.

Importance of CPM in Advertising

CPM is important for a business when they advertise their brand and products, and services. Here are some of the ways in which CPM proves to be a crucial metric.

High Visibility – When you optimize your ad for a better CPM, you expand the value and reach of your brand, making a name in the industry.

Target Relevant Audiences – From a branding and sales perspective, CPM is a beneficial metric because you place ads on sites that your target audience frequently visits.

Drive Conversions and Sales – When you pay per thousand impressions, ads that are performing and converting well on different marketing channels can also perform well in CPM campaigns.

Apart from this, CPM helps businesses in comparing the effectiveness of their campaigns on different marketing channels. For example, if search engine advertising has a lower CPM than social media advertising, then it is clear that investing in search engine advertising will cost less to reach 1000 people.

Now that we know the benefits and importance of CPM, you must have a look at how you can optimize your CPM campaigns for better results.

Optimize Your CPM Campaign 

#1 – Choose an Ad Network

An ad network is where you will display your CPM ads. There are several publishers and networks available for the same. Google AdSense is the most popular choice for most businesses because of the variety of ad formats they offer such as display ads, video ads, text ads, in-article ads, in-feed ads, games ads, matched content ads, and more. However, there are other options as well like Media.net, Criteo, SmartyAds, and BuySellAds. You should analyze where your competitors are and through which network you can capitalize the maximum. Then pick the perfect ad network for your campaigns.

#2 – Target the Right Audience

No matter how good or visually appealing your ad is, if it’s not showing up to the relevant audience, you won’t get the expected results. So, one of the most important optimization tips is to have the right niche audience to target and decide if your audience is going to engage the maximum with your ads. In different ad networks, there are advanced filters to define your audience based on their behavior and interests. It will take time, but once done right, you will have a better click-through rate and higher conversions, resulting in a lower CPM.

Related Read: How to Set Up Google Ads: The Ultimate Step-by-Step Guide 

#3 – Choose the Right Ad Format & Placement

For CPM campaigns, it is equally important to choose the right ad format and a relevant placement for the same. For this, you first need competitor research and also research on your buyer personas to understand what will work the best for you. This will also help you decide on the ad network as certain ad networks offer limited ad formats. Therefore, you must analyze and create the type of ads that your target audience is more likely to engage. As for the placement, it should sync well with the web page.

#4 – Analyze and A/B Test Your Ads

A/B testing is a must these days when it comes to marketing and advertising as it helps you understand what is working, what’s appealing the most to your target audience, and so on. For that, you first need to analyze the results and performance of your CPM ad campaigns. You can track and compare the CPM and other crucial metrics in the ad software that you are using. Based on the results, you can make different variants of your ads by making small changes to see what’s working best for your audience.

Related Read: SEO vs PPC: Which Is Better for ROI?

Final Verdict

The primary goal of CPM in advertising is to demonstrate the cost-effectiveness of advertisements displayed on various online platforms. The split-testing method is recommended for finding the optimal platform with the target audience and low CPM rates. Plan your CPM marketing campaign so that two or three advertisements appear on different websites at the same time.

Comparing results after three to five thousand impressions is reasonable. A marketer should consider the CPM rate and the profitability of the ad view.

FAQs

What is a good CPM for display ads?

For display ads, anything between $0.50 – $4 is considered a good CPM value. This can vary based on the target niche and demand.

What is vCPM?

vCPM or viewable CPM stands for cost per thousand viewable impressions. This metric is used to measure how many people actually see the ad on a webpage. It can be calculated as follows:
vCPM = Budget ÷ [(Total Ad Impressions x % of Ad Viewability) ÷ 1000]

What factors affect CPM?

There are two main factors that affect CPM:

  • The price that advertisers are willing to pay
  • The number of advertisers that are ready to match that price

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ABOUT | THE AUTHOR

Michael J Fox, CEO

Michael Fox is CEO of Corberry Digital, one of the top digital marketing agencies in the nation. Before creating Corberry, Fox was a co-founder & CEO of eFaucets.com and Hausera.com, an eCommerce retailer promoting top CPG brands such as Kohler, Delta and Moen. At eFaucets, they drove SEO with over 115,000 SEO keywords ranking high in Google. The company generated over $500 million in revenue using digital marketing. Fox is a 18 year retail eCommerce veteran and a Forbes Contributor. He is a digital marketing strategy adviser to businesses large and small.

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