Learn about CPM marketing, its benefits to advertisers, and how to calculate CPM rates.
In the frenzied world of digital advertising, brands compete for consumer attention across social media, search engines, and websites. An effective messaging strategy—not to mention the right advertising pricing model—can help you break through the noise.
One of the most popular tools to achieve this is CPM marketing. With this format, advertisers pay based on impressions instead of clicks or conversions. At first glance, CPM marketing seems like a leap of faith. You’re paying upfront without guaranteed results. However, as in life, first impressions matter.
This article dives into how CPM marketing works, how to calculate your rates, and why it may be the right choice for your marketing goals over other pricing models.
What is CPM?
CPM is a digital advertisingpricing model where advertisers pay for each ad display or impression. CPM stands for “cost per thousand impressions,” or “cost per mille” (mille means “thousand” in Latin).
Benefits of CPM
CPM marketing offers several advantages, making it an effective option for many digital advertising goals. Here are some of the key benefits of CPM ad campaigns:
Improved brand awareness
A CPM campaign on ad networks like the Google Display Network allows businesses to increase brand awareness. The CPM pricing model gives advertisers access to premium ad placements and broad reach across web pages. This builds brand awareness and recognition by showing ads multiple times.
CPM ads can go beyond awareness and into sales when part of larger digital marketing efforts.
Cost-effective customer acquisition
CPM advertising is a cost-effective way to get new leads and customers, compared to some other digital marketingpricing models. CPM campaigns let you tailor your target CPM rate based on your customer acquisition costs and the value of a conversion. Spending is predictable, because you pay only for impressions delivered rather than clicks, which can be harder to estimate.
Effective retargeting
Although CPM ads may not directly drive conversions, they allow retargeting, which can generate leads and sales. CPM campaigns repeatedly get your brand and ads in front of high-intent audiences across ad formats and placements.
When aligned with email, social media, and search ads, marketing campaigns that use CPM can nurture consumers through to conversion. The awareness and familiarity of CPM strategies make potential customers more likely to engage and convert when they see your messaging on other channels.
How to calculate CPM
The formula to calculate CPM is straightforward:
CPM = (Total Cost of the Campaign / Total Number of Impressions) x 1,000
To use the CPM formula, you need two pieces of information:
- The total cost of your advertising campaign, or the amount you pay to run the ads
- The total number of impressions your campaign will generate (or has generated)
Once you have these numbers, you divide the total cost by the total number of impressions. This gives you the cost per single impression. Because CPM is the cost per thousand impressions, you multiply the result by 1,000 to get your CPM.
CPM calculation example
Let’s say a clothing retailer runs an online advertising campaign with the following details:
- Total cost of the campaign: $5,000
- Total number of impressions: 2,000,000
Here’s how they could calculate their CPM:
CPM = ($5,000 / 2,000,000) x 1,000
CPM = $2.50
So, the CPM for the clothing retailer’s advertising campaign is $2.50. This means that for every thousand impressions its ads receive, it pays $2.50.
CPM vs. CPC vs. CPA: What’s the difference?
Advertisers can choose from various ad pricing models, each with its own method for calculating costs. The three most common models are cost per mille (CPM), cost per click (CPC), and cost per action (CPA). Understanding the differences between these models is crucial for marketers looking to optimize their ad spend and return on ad spend (ROAS).
Here’s what each pricing model means:
CPM (cost per mille)
CPM, or cost per mille, refers to the cost an advertiser pays for one thousand impressions for an advertisement. An impression is registered each time the ad is displayed to a user, regardless of whether it’s clicked or leads to a conversion.
CPM is best suited for campaigns designed to increase brand awareness, because it focuses on the number of times an ad is seen rather than interaction with the ad.
CPC (cost per click)
CPC, or cost per click, is a pricing model where the advertiser pays each time someone clicks on its ad, regardless of what happens after the click. This model is typically focused on driving traffic to a website or landing page.
CPC is often used when the campaign aims to drive immediate action, such as visiting a website or landing page, rather than just viewing an ad.
Here’s how to calculate CPC:
CPC = Total Cost of the Campaign / Total Number of Clicks
CPA (cost per action)
CPA, or cost per action, is a model where the advertiser pays only when a specific action is taken due to someone clicking the ad. This action could be a sale, a sign-up, a download, or any other predefined conversion event.
CPA is a performance-based model that is commonly used in affiliate marketing, a process where content creators earn a commission every time someone buys something through an affiliate link they share. Advertisers favor it to ensure their ad spend maps to specific conversion goals.
Here’s how to calculate CPA:
CPA = Total Cost of the Campaign / Total Number of Conversions
Each model serves different advertising objectives. The choice between CPM, CPC, and CPA depends on what an advertiser wants to achieve with their campaign.
Wrapping Up:
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The article originates from: https://www.shopify.com/za/blog/cpm-marketing