CPM stands for Cost Per Thousand and is a key indicator in digital marketing for measuring the cost of online advertising campaigns. Here is how it is calculated and what it is used for.

Scrolling here and there on the web, you have probably already come across this acronym, CPM.

Have you ever really understood what it is and, more importantly, what it is for?

If the answer is no, don't worry, I'm here to help you!

In this article I will explain what CPM means and how to use it.

But before we delve into the issue, let's take a step back.

Some time ago I told you about the importance of thedata analysis and some performance indicators (KPI), such as the impressions, so you can understand and evaluate the effectiveness of your marketing strategies.

Do you remember? (If not, I suggest you reread the articles about it).

It is essentially a matter of identifying numerical goals and seeing how well they are met; only then can you know if you are actually moving in the right direction for the growth of your business.

Well, as I anticipated, there are several KPIs, and in the world of digital marketing they all play a key role, especially when we talk about sponsorship campaigns.

In fact, thanks to the use of certain metrics, you can evaluate whether or not your campaign has achieved the desired results; by doing so, the next investment you make in web advertising will certainly be more targeted and optimized.

These include the CPM, namely. Cost Per Thousand.

It is an indicator that helps you estimate the cost of various promotional marketing initiatives; it is one of the most common methods, for example, for pricing web ads. It is also a great way to maximize brand exposure and visibility.

In itself, it is essentially a number, which taken by itself might seem to be of little use: one needs to be able to interpret it and relate it to other indicators to really understand how things are.

And this is where I want to help you, to give you an understanding of what it is, how you can calculate it, and most importantly how you can use it to your benefit.

In this article I will explain everything in the simplest way possible.

Ready? Go!

CPM: What does that mean?

Quite simply the meaning of CPM stands for Cost Per Thousand and is a numerical indicator, expressed in currency (for example, in euros).

First, let's get one thing straight: there are lots of metrics and they are different for each field (traditional marketing, websites, eCommerce, social media, etc.). In this specific case, we are referring to those of online advertising: in fact, CPM is used to Measuring the cost of digital advertising.

Suppose you want to run a promotional ad on a website or, conversely, an advertiser pays you to advertise on your blog. CPM allows you to define the cost or price of such operations: it is the most commonly used indicator for buying and selling advertising space on social media, search engines and websites. It is basically used to understand the value of such space.

How?

So the cost per thousand, or CPM means nothing more than the cost you pay per 1,000 impressions, That is, the digital views of a piece of content on a web page. When you make an advertisement for your business, CPM tells you how much it costs you to show that particular message to 1000 users. Or, vice versa, it is the price the advertiser is willing to pay for his or her ad to get 1000 views from potential customers on your page.

CPM: How is it calculated?

The basic formula for calculating the single CPM is as follows:

CPM = (Total Campaign Spend / Number of Impressions) x 1000

If an ad costs €500 and the advertising medium can reach an average of 100,000 people, the CPM will be €5:

500/100.000 = 5

This means that the advertiser will pay 5€ for every 1000 times his ad is displayed on the web page.

You can also do the reverse calculation if you want to estimate the cost of a given advertising campaign. In that case:

  •  Consider the total number of impressions on the site;
  •  Consider the CPM rate;
  •  Multiply the two values and divide by 1000.

For example, if the advertising medium can reach an average of 100,000 people and the CPM is 5€, the total cost of the ad will be 100,000 x 5 / 1000 = 500€.

CPM: What is it for?

As you may have guessed, CPM is a very useful metric in marketing to show you the efficiency of an advertising campaign. It allows you to figure out how much it will actually cost you, thus setting an accurate budget based on the number of views you want to get for that type of online promotion.

CPM meaning in advertising

At the planning stage, it allows you to assess the cost-effectiveness of your strategy: consider your investment based on actual media exposure. This is not a unit cost: it is incurred each time an ad is viewed a thousand times, regardless of the number of users it reaches. In fact, the same person might see the same ad several times and still be considered as an impression to be charged.

CPM doesn't guarantee that users will interact with an ad (for that you need CTR, Click Thorugh Rate, which I'll talk about shortly), but it is very useful for all marketing initiatives involving corporate branding and campaigns targeting the brand awareness: choosing to focus an online advertising campaign on Cost Per Thousand is ideal for making sure your ad is seen by as many people as possible.

The motivation is quite simple: sometimes a click does not serve to generate awareness. In fact, in these cases it is enough to see the brand to increase awareness or authority.

The benefits of CPM advertising

Although there are metrics galore for evaluating user engagement and ad effectiveness, CPM continues to be important to business owners and advertisers.

Implementing a marketing strategy based on this parameter can have some important advantages.

First of all, it helps you to improve credibility: having brand awareness as a focus, CPM campaigns increase visibility and brand awareness. You can also get leads that are very relevant to your business : in fact, usually with CPM ads you refine your targeting options so that you reach only the most relevant customers.

If the content or advertising linked to a CPM campaign is of high quality, people will start talking about your brand, resulting in a increased traffic and conversions.

Finally, in addition to being inexpensive compared to other promotional strategies, combined with other metrics such as CTR and conversion rate, it is a key performance indicator that allows you to Evaluate the investment and return Of your campaign.

Or, vice versa, it is a way to monetize advertising space on your website, earning money from views alone (since visitors do not need to click on the ads).

Conclusion

In the world of digital marketing, analyzing metrics is critical to understanding how to achieve the goals you set for yourself and making informed decisions in order to ensure the success of your business.

While it is true that CPM on its own leaves a bit to be desired, in the sense that, as I mentioned at the beginning, it should always be interpreted and compared with other data (which I will tell you about soon), it is equally useful as a starting point to ensure you have good visibility and begin to juggle the various performance indicators that you should never overlook when you want to sell online (here a guide on how to sell online in 4 steps).

Only by consistently evaluating over time how your web promotion activities evolve, in fact, can you be sure that your digital marketing strategies achieve more and more optimal performance.

Photo by Stephen Dawson on Unsplash