Publishers and online marketers often use CPM to get an insight into advertising budgets among other things. Many of them use the CPM calculator for this purpose, as this powerful tool can help save time. That’s not to say you shouldn’t know how to compute it using the CPM equation. But first, you should know what CPM stands for.
CPM is the abbreviation for cost per thousand or cost per mile, which is used for measuring ad volume. With that being said, you need to know the number of impressions and advertising costs when calculating this measure. A lot of online marketers use it together with CPC (cost per click) advertising for the best results.
To help you understand how this model works, we are going to explain it using some examples. We will see this method in action and the results it delivers. You can also learn how to calculate Cost Per Mille – either yourself using the CPM formula or with the use of our calculator. Read on to find out more!
CPM Advertising: Everything You Need to Know About CPM
Cost per mille or CPM (also known as Cost per Thousand or Cost per 1000 Impressions) is an advertising option in which businesses pay a set price for products or services for every 1,000 impressions generated through an advertisement on a webpage. This is a common metric used in online advertising to compare the relative value of different ad placements and campaigns.
Bear in mind that this model is not typically used as a unit of measurement for success. It can be misleading when comparing two different campaigns with vastly different numbers of impressions. So, it is an important metric for determining the cost of advertising on a media platform. Additionally, it’s one of the most common ways to measure the value of an advertising campaign.
It is worth noting that the advertiser pays for each impression on an advertisement, no matter if it is clicked or not. You should also note that the cost per mille can vary depending on the country or state and the type of media that you use.
What Are Alternatives to the CPM Model?
This model is very straightforward (it is easy to use and understand), so all parties find it clear. However, it is not perfect. Maybe the biggest disadvantage of the CPM model is that it is not closely connected to value. As an advertiser, you have no way of knowing how exactly the value will be, i.e., how much you are going to get.
CPM vs. CPC Model
If you pick the CPM model, you will have a hard time finding out what you will get in the end when converting web traffic into sales or leads. There’s no way to estimate this value using the CPM calculator. That is why many marketers and advertisers prefer the Cost Per Click (CPC) model. In that case, they are paying for the actual traffic they get.
A cost per click (CPC) model is a bidding system in which advertisers pay a set amount of money every time their ad is clicked. Advertisers can use different bidding strategies to control the price they are willing to pay for a click. Some of these strategies include:
1) Maximizing conversion rates: The advertiser sets the maximum amount they are willing to spend for each conversion.
2) Maximizing clicks: The advertiser sets the maximum amount they are willing to spend on clicks and then lets Google optimize bids for them.
3) Maximum CPC bid: The advertiser sets their maximum CPC bid and Google automatically adjusts bids so that they only pay what it takes to show ads as often as possible without exceeding the bid limit.
CPM vs. CPA Model
Furthermore, many choose the Cost Per Action (CPA) over the CPM model due to the lower risk. This model involves paying every time an action is performed by the user, whether it is an online purchase, registration, or something else. However, the CPA model can be a bit risky for publishers since they are relying on advertisers’ capability of monetizing the web traffic.
CPM Formula: How to Compute Cost per Thousand
As the name suggests, Cost per Thousand (CPM) is computed by dividing the cost (the total ad spend) by the number of impressions. That result should be multiplied by 1,000. The CPM formula is as follows:
CPM = 1000 * cost / impressions
For example, if an ad campaign generates 20,000 impressions at a cost of $1,000, then the CPM is calculated this way:
CPM = 1,000 * 1,000 / 20,000 = 1,000,000 / 20,000 = 50
What does it mean? This means that for every dollar spent on this campaign, it will generate $50 in revenue from ads.
You can also use reversed equations to calculate the number of impressions or the cost of advertising. For example, if you want to compute impressions based on the CPM and cost involved, then you need to use the following formula:
Impressions = 1,000 * cost / CPM
Likewise, if you want to calculate the cost (in order to find out how much should be paid) based on the CPM and impressions, then you should use the equation below:
Cost = CPM * impressions / 1,000
FAQs
Is a High CPM Good or Bad?
Generally speaking, the higher CPM means the higher chances of your ad appearing on the Internet. However, a high cost per thousand is not necessarily a good thing. The only way to know if it’s a good deal for you is to compare the cost with your other options.
It’s important to understand that the CPM is not just about the amount of money you are spending on ads, but also how many people are seeing your ad. The higher the CPM, the more expensive it will be for you to reach your target audience.
What’s a Typical CPM Rate?
While CPM can vary widely due to different factors, its average value is $6.5, whereas the cost usually goes somewhere between 2.50 and 4.50 dollars/new follower.