CPM: what it is, how it is calculated and how it is used in advertising
Origin of the term
CPM is an acronym for Cost Per Millennium, where the word "millennium" or its shortened form "mille" translates from Latin as 1000. This payment system originated in traditional media, such as television and print, because they appeal to a wide audience. As a result, the cost of advertising is determined not by the number of individual views, but by the number of people involved.
What is CPM?
CPM (cost per mille) is a metric that shows the average cost per thousand impressions of an advertisement. This term is also used in digital marketing as a model for paying for advertising activity, where the cost is based on the number of impressions rather than the number of clicks or user actions.
Typically, CPM is used to measure the effectiveness of media campaigns designed to increase brand or product awareness among target audiences. The cost per thousand impressions allows you to analyse and compare the effectiveness of different advertising approaches, formats, campaigns and platforms, helping you to choose the most profitable options.
It is important to note that CPM can be calculated for both contextual and targeted advertising, ensuring the versatility of this metric in different marketing strategies.
How to calculate CPM
To calculate CPM (cost per thousand), which reflects the average cost per thousand ad impressions, it is important to know two main parameters: the total number of ad impressions in your campaign and the total cost of that campaign. With this information, you can use the following formula to calculate the CPM:
CPM = (Cost per campaign / number of impressions) × 1000
This formula allows you to determine how much an ad cost per thousand impressions, which is a useful metric for comparing the effectiveness of different advertising campaigns or platforms.
Example of CPM calculation
The price of advertising on a news website is UAH 1,270 for a period of seven days, while the website provides approximate statistics of 9,200 views for that week. Having received the necessary data, we can use the formula to calculate the CPM cost, which is UAH 138 per thousand impressions:
CPM = 1270/9200*1000 = 138 UAH per thousand views.
What does CPM depend on?
In online marketing, the cost per thousand impressions (CPM) depends on many factors, including
- The level of competition. High levels of competition between advertisers for a particular platform or audience will drive up the price of impressions.
- The placement of the ad. Ads that appear at the top of the page are more expensive due to their higher visibility compared to ads placed further down the page.
- Ad format. Video ads cost more than banner ads because they grab users' attention more effectively.
- Popularity of the ad space. Platforms with large audiences charge higher rates for impressions due to the large number of users.
- Geolocation of the audience. Advertising in major cities and capitals is considered more expensive due to higher income levels and greater competition between brands.
- Platform specialisation. Websites specialising in business, finance and other highly qualified topics tend to attract a more affluent audience, making them more attractive to advertisers than entertainment websites.