Cost Per Thousand (CPM)

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Cost Per Thousand (CPM), also known as Cost per Mile, is a metric that shows the cost an advertiser pays for one thousand views or impressions of an advertisement.1

The “M” in CPM stands for 1,000, showing the price for a thousand views.

It’s a metric commonly used in campaigns intended to reach audiences of thousands of individuals. 2

Formula

cpm formula

How Is the Cost per Thousand (CPM) Calculated?

CPM is calculated by dividing the total cost of the ad campaign by the total number of impressions and multiplying by 1,000.3

CPM = Total Ad Spend / Number of Impressions x 1,000

Here’s a breakdown of what each part means:

  • Total Cost of the Campaign: This is the total amount an advertiser spends on their ad campaign.
  • Total Impressions: This represents the total number of times the ad was displayed or viewed.
  • Multiplication by 1,000: Since CPM is the cost per thousand impressions, you multiply the result by 1,000 to scale it accordingly.

Example

If an advertiser spends $500 on a campaign that generates 50,000 impressions, the CPM is calculated as ($500 / 50,000) x 1,000 = $10.

This means the advertiser pays $10 for every thousand impressions of their ad.4

Purpose

The primary purpose of the CPM metric is to measure how cost-effective an advertising campaign is by calculating the cost of reaching a thousand views or impressions.

It lets advertisers see the expense of showing their ads to a broad audience, which aids in optimizing budgets and comparing costs across various advertising platforms or channels. 5

How it Works

Cost per Thousand (CPM) works as a pricing model in advertising in which advertisers pay a set fee for every 1,000 impressions of their ad.

An “impression” occurs each time an ad is displayed, regardless of whether it’s clicked.

Here’s the process:

  1. Ad Gets Placed: The advertiser places an ad on a platform (like a website, social media, or digital billboard).
  2. Impressions Accumulate: As users visit the platform, the ad is displayed, and impressions are counted. Each display counts as one impression.
  3. Counting to a Thousand: The platform tracks how often the ad is displayed, grouping the impressions in sets of 1,000.
  4. Cost is Calculated: The advertiser is charged based on the number of these 1,000-impression sets. 6

Usage

CPM metric is used in various advertising channels and platforms to price ad impressions.

Here are some of them:

  • Digital Advertising: Websites, social media platforms (Facebook, Instagram, Twitter), and online video platforms (YouTube) charge CPM for ads such as banners, video ads, and sponsored posts.
  • Mobile Advertising: Ads displayed on mobile apps and websites are often priced on a CPM basis, reflecting the cost of showing ads to users on mobile devices.
  • Display Advertising: CPM prices display ads, such as banners, sidebars, and interstitial ads across different websites.
  • Programmatic Advertising: CPM is a key metric in programmatic ad buying, where ads are bought and sold in real time using automated systems.
  • Television and Radio: Though tailored to their context (like cost per thousand viewers or listeners), TV and radio use CPM models to set prices for commercial airtime.7

Related Terms

References

1. Wikimedia Foundation. (2023, November 23). Cost per mille. Wikipedia. https://en.wikipedia.org/wiki/Cost_per_mille

2. Kenton, W. (n.d.). Cost per thousand (CPM) definition and its role in marketing. Investopedia. https://www.investopedia.com/terms/c/cpm.asp

3. What is cost per thousand (CPM) and how to calculate it. DashThis. (n.d.). https://dashthis.com/kpi-examples/cost-per-thousand/

4. Manzoor, A. (2010). E-commerce: An Introduction. Germany: Lambert Academic Publishing. https://www.google.com/books/edition/E_commerce/MwEB8LuK0P0C

5. Mokhtar, M. A. (2013). Performance Based Pricing Models in Online Advertising: Click Per Mille (CPM) and Cost Per Click (CPC). https://utpedia.utp.edu.my/id/eprint/13590/

6. Dasic, A. (2023, January 23). What is CPM in advertising and how does it work?. Target Video. https://target-video.com/what-is-cpm-in-advertising/

7. What is CPM? the role of CPM in marketing. Mailchimp. (n.d.). https://mailchimp.com/resources/what-is-cpm/

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