What’s CPM in Advertising, How to Use it in Your PPC Campaigns?

Ad pricing models often perplex new marketers. There are many kinds of pricing models designed for online marketers. Some of these are:

• Cost per click (CPC)
• Cost per acquisition (CPA)
• Cost per impressions (CPM)

CPM is one of the most commonly used metrics. It is an abbreviation for “cost-per-mille,” where “mille” is a Latin word which means “thousand.” As such, this metric indicates that the cost of CPM advertising is calculated based on measured impressions. For every thousand impressions, advertisers pay Google a certain amount of money.

In this article, we’ll help you understand what’s CPM in advertising and how you can leverage it in your pay-per-click (PPC) campaigns.

What’s CPM in Advertising?

CPM measures the cost of a digital advertisement per 1000 impressions. When the ad is shown on YouTube or Google Display Network (GDN), it is counted as an impression.

The CPM metric is typically used in bidding systems to show how much the advertisement will cost for every thousand users seeing it. For instance, if a CPM price is set at $3.00, you have to pay $3.00 for every thousand impressions of your ad.

The CPM payment model is one of the most commonly used models by GDN. Google handles CPM bidding and makes sure that your brand only has to pay each time potential buyers actually see your advertisements.

Unlike CPC that only incurs a cost when visitors click on the ad, the CPM model charges the marketer every time their advertisement is shown on a user’s web browser.

How Does CPM Work?

Both publishers and advertisers can use the CPM metric. A publisher can use their target CPM to sell advertising space, which may vary if the advertiser targets a particular, premium audience or if they are purchasing a high volume of ad impressions.

You can calculate CPM by the ad, ad location, or campaign. This metric is seldom used independently. Typically, CPM is used together with other, more advanced metrics. However, CPM delivers context and key information that can help you make strategic decisions and improve your revenue.

How To Calculate CPM

It’s easy to calculate how much you should be paying using the CPM model. First, calculate the total number of served impressions. Then, divide it by 1000. Now to get CPM, you only need to divide your campaign budget by that number.

These three steps can help you quickly calculate the number of impressions you will obtain for a certain amount of money. Alternatively, you can also determine how much you should pay for a particular number of impressions.

The formula is quite simple, which is probably one reason why the CPM revenue model is the most commonly used pricing method for digital advertisements.

For instance, suppose an ad has 20,000 viewers every month. A marketer would like to reach 20,000 users throughout a month. The advertiser sets up a campaign in which each user sees the ad twice. As 20,000 users will view the ad two times, the total number of ad impressions is 40,000, and the total cost is let’s suppose is $200.

In this example, you can find the CPM as:

CPM = Cost / Impressions x 1000 = (200/40,000) X 1000

This results in a CPM of $5. Superficially, the ad campaign seems more valuable as it delivers more impressions with the given audience size.

Benefits of CPM Advertising

CPM can help your brand in several ways, including:

• Better visibility – Online businesses wish to establish or expand their brand value. CPM advertising is an excellent opportunity for newly established businesses that want to make a name for themselves with consumers and prospective business partners.
• Targeted ads for relevant audiences – Promoting an online venture on a relevant affiliate site can make CPM useful from a sales and branding perspective.
• Improved conversion with high-performing campaigns – Pairing high converting display or banner ads with the right advertising platform can be a winning combination. For instance, an apparel store advertising on a popular fashion blog can make the CPM model work in its favor.

Key Factors Affecting CPM

Multiple factors can impact the value of CPM. Some of these are:

• Geography – Average CPM is affected by how mature the online industry is in a particular country, and the spending power of the locals in that country. For instance, CPMs in the US, Europe, Australia, or Japan are typically higher than in the Middle East or Brazil.
• Targeted Ads – Targeted ads using accessible data to develop a customer profile will command higher CPM prices than just purchasing the ad space without segmenting the target audience.
• Device – Ads served on mobile devices have a lower CPM than on desktop because of screen size limitations, lower clickthrough rate (CTR), and conversion rate.
• Website topic and quality – Niche publishers can have a higher CPM as they have a more segmented and homogeneous audience than a generic news website. As more companies take brand safety into account when assessing ad placements, higher-quality sites can command higher prices as well.
• Ad size – Typically, larger ad formats have a higher CPM as they are more prominent and more likely to trigger user action. But the most common ad sizes, even though not the largest, also yield higher CPMs.
• Ad viewability – For display ads, viewability can be defined as having at least 50% of the advertisement on screen for at least one second. A publisher with a low viewability score will see their CPM rates decline significantly.
• Past performance – Advertisers value traffic quality and are willing to pay higher CPMs for placement on websites that drive conversions and a higher return on investment (ROI).
• Number of ad units on the page – A higher number of ad units on the page will drop the CPM rates. A bigger supply will result in lower bids for those ad units.
• Seasonality – Traffic has some seasonality within different industries, which leads to variations in CPM rates. For instance, summer can see a drop in spending, especially in Europe, as many users take time off work for holidays.

Difference Between CPM & Other Advertising Metrics

The conventional CPM advertising model somewhat differs from the latest forms of mobile and in-app advertising as it doesn’t need a particular outcome from customers to be considered complete.

For instance, in cost-per-completed-view, advertisers don’t pay publishers until a video ad is viewed completely. Therefore, simply looking at the ad isn’t enough in this scenario.

Likewise, cost-per-engagement advertising needs some type of action beyond the initial impression, such as taking a survey or playing a mini-game.

CPM in advertising removes all these latest tactics and takes advertising back to fundamentals. Moreover, in some cases, that’s precisely what the product demands.

What is a Good CPM?

As with most online advertising metrics, you can’t determine if a CPM is good or bad based on just a single value. A lower CPM isn’t always a positive sign as it may indicate low-quality traffic.

For advertisers, having a higher CPM doesn’t mean they’re getting higher earnings, as some ad inventory may not be sold. You have to put that data in context to correctly evaluate whether the CPM is good or bad.

Assessing previous performance data, benchmarking results against averages for your market, and analyzing the influence of CPMs on your ROI can help you decide whether a CPM is good or bad.

The decision will depend mainly on two things:

• The strategies you’re using
• Your campaign goals

For instance, if you use contextual targeting, you might see CPMs well under $1.00. You’ll receive plenty of impressions, but if you’re trying to meet engagement objectives such as performance or acquisition, it’s unlikely you can meet those objectives.

How is CPM different from vCPM?

Viewable CPM (vCPM) allows a brand to pay only when an advertisement is viewed by customers, contrary to paying when the ad renders on the page. In other words, you bid on the value of an ad when it is shown in a “viewable” position.

Advertisers who choose a vCPM bid higher than a CPM bid will have an advantage in winning these significant kinds of impressions. Such a strategy will keep the brand’s bids highly competitive in the short- and long-term.

Bid on Viewable Impression

If you want to pay only for ad impressions considered viewable, you can do so with viewable CPM. An advertisement is counted as “viewable” when 50% of your Display ad appears on screen for one second or longer. For video ads, they are viewable when they run continuously 2 seconds or longer.

You can opt for vCPM as a bid strategy when you select CPM bidding for your “Display Network only” campaign. Also, keep in mind these factors:

• With vCPM, you bid on 1,000 viewable impressions, and you pay for impressions that are considered viewable.
• Typically, to keep your costs and traffic at the same level as a CPM campaign, your bid for your vCPM may need to be higher than your bid for a standard CPM campaign. But you should experiment with a bid that works for your campaign objectives.
• The vCPM bid strategy isn’t available for Search Network only campaigns.
• If you create your campaign using the vCPM bid strategy and then create incompatible ads, your ads won’t run.
• A small part of served impressions may be charged.

What is the Difference Between CPM, CPC, and CPA?

CPC is when marketers pay only if the user clicks on the advertisement. Typically, this metric is used for the promotion of a particular product to a niche market. On the other hand, CPA is when advertisers pay only when the viewer buys the product or service that can be directly traced back to the ad.

Having a high CTR is a significant factor for CPA and CPC as the objective is to have the user buy your product or service.

CPM is slightly different in the sense that CTR doesn’t matter much. Brand awareness and providing a direct message are the major targets of CPM ad campaigns. Although the users may not click on the advertisement, it is still getting exposure and delivering a specific message on high traffic sites.

CPM is attractive to site publishers as they just have to show the advertisements to get paid.  But as the CPM rates are very low, it is well-suited for advertisers to boost brand awareness and deliver a particular message in a cost-efficient manner.

Should You Use CPM Advertising?

CPM advertising is often less costly than CPA or CPC marketing. But the price that you pay will depend on where you’re showing your advertisements. If you want your CPM campaigns to display in front of a large group of users or on a famous site, you may have to bid more for your placement.

Social websites like Facebook let you narrow down your users with subtle targeting measures. You can create brand awareness quickly for a very low price with social targeting and a CPM campaign.

CPM advertising can also help you in several other ways, such as:

• Boost credibility – Online brands have to establish themselves in their target market before the customers will take them seriously. CPM advertising increases awareness so that users start feeling more accustomed to new businesses.
• Generate highly relevant leads – As businesses improve their targeting options with CPM ads, you will likely reach out to only the most relevant users. CPM tactics lead to thousands of prospective traffic sources for a growing business.
• Create industry buzz – If the content or display ad is of good quality, users will begin discussing your business. The best CPM strategies produce a huge buzz, which drives more traffic and conversions.

Disadvantages of CPM Advertising

The challenge with CPM advertising is that impressions tell you only that your advertisement was shown, not whether your audience viewed or reacted to it.

Evaluating your ads’ success by their CPM is similar to thinking you’ve found an excellent location for your brick-and-mortar shop because you see many visitors walking by. However, if nobody ever comes inside, it doesn’t matter how many people look through the window.

Here are some drawbacks of using CPM advertising:

CPM Won’t Help You Calculate Precise ROAS

Return on ad spend (ROAS) shows the revenue your brand acquires from every dollar you spend on advertising. Understanding ROAS is critical because this metric tells you clearly whether the funds you spend on advertising help your company develop.

Knowing your CPM doesn’t help you precisely calculate ROAS for the following reasons:

You can’t attribute revenue to an impression

If an advertisement is shown and the user doesn’t respond to it, there’s no way to tie their prospective procurement to that advertisement. It’s just like the user who walked by your billboard. Did they purchase your product after viewing your advertisement? You’d never know.

You can’t tell how many users saw your ad

Even if you made a specific amount of revenue every time your ad was shown to a new user, you can’t calculate ROAS using CPM because you can’t specify how many unique users see your advertisement.

Impressions don’t tell you whether your audience is impressed

As an impression doesn’t need any action from the users, CPM advertising doesn’t tell you anything about your advertisement’s quality or effectiveness. Just because an ad shows up on a person’s screen doesn’t mean they’ve seen it. If you measure your ads by CPM, you may be paying for many users who ignore your ads.

Tips To Optimize Your CPM Campaign

Typically, the lower your CPM, the higher your ROAS. A high CPM indicates a weak campaign. Here are some tips you can use to keep your CPM low and optimize your campaign.

• Always target the right users at the right time. If your ads already have a good CTR and Relevance score, try to broaden your audience segment. A broad audience will allow Google to bid in more auctions, improving your chances to reach maximum audiences.
• Even if you have the best audience possible, if you don’t have an offer that persuades them to take action, they won’t click your ad and purchase from your brand. Moreover, Google will view your advertisement as irrelevant.
• Test different products, free shipping, bundles, discounts, etc. When you do this, you can convey more value in your product to instill curiosity and engage more people.
• If you emphasize seasonal campaigns, try to optimize it such that you generate a decent level of impressions and a reasonable conversion rate without wasting budget.
• Concentrate on ensuring the same people don’t view your ad more than thrice.
• Ensure users recall your brand after they’ve viewed your advertisement.
• In your ad/landing page, compel your customers that you have something beneficial to offer with an influencer recommendation or quote from a happy client.

FAQs About CPM Advertising

What are CPC and CPM?

CPC is an abbreviation for Cost Per Click and CPM for Cost Per Thousand Impressions.

CPC vs. CPM: Which is Better?

It depends on your campaign goals. When you want to focus on driving clicks, generating sales, or getting customers to perform particular actions like signing up for a newsletter, you should prefer the CPC model.

But when you want to grow your brand awareness and get as many people as possible to see your ad, you should prefer CPM ads. Advertisers can access both CPC and CPM models on most major advertising platforms.

How Do You Calculate CPM?

CPM = Cost of Ad / Impressions x 1000

How Does Google Determine CPM Value?

You have to specify the CPM bidding strategy for your advertisements so that Google can determine your CPM value. This bidding strategy means that you pay based on the number of impressions (times your advertisements are displayed) that you get on the GDN.

In the case of CPM, you pay for each set of a thousand views of your advertisement. You specify CPM bids to inform Google how much you’re keen to spend on that set of impressions. CPM bidding is ideal for marketers who are focused on brand awareness.

How Can I Get the CPM Bid in Google Ads?

When developing your video campaign to increase brand awareness and reach, you can specify the Target CPM bid strategy from the bidding strategy option.

Wrap Up

Display marketing is the primary source of revenue for a large number of websites. You can deploy and scale it quickly. Plus, it’s still in high demand by marketers.

What’s CPM in advertising? It’s a fundamental yet vital metric to measure budget for every thousand impressions. Tracking CPM rates will help you evaluate your ad inventory’s performance for every thousand impressions and take measures to optimize your revenue channels.

To do so, you should comprehend what impacts CPM rates and the seasonality of the CPM variations. When determining whether a CPM value is good for you, you should consider different factors. The answer will depend on context and whether you generate a good ROI.