The Cost Per Thousand (in short CPM) banner advertising was launched back in 1995. Not forgetting, it’s the same year the Internet Advertising Council (now the IAB) was launched. This fairly easy to understand ad pricing model coupled with easily scale-able ad serving technology meant everyone could get in on the online advertising game.
CPM advertising forecasting only depends on inventory levels. Consequently, this meant website owners could now predict how much money they could make fairly easily. Of course, they weren’t taking into account problems like fill rate or latency, which is why over-estimations of potential profitability were commonplace at the time.
This is probably what led to the great dot-com crash, but that’s another story. One fun fact is that CPM is often reported by other sites as standing for Cost Per Mille. However, we at jmexclusives think we might have accidentally made up this definition on an early version of this site!
And as such, we have since found older sources referring to the M in CPM being there as the roman numeral for 1,000. However, we have never found someone who said it stood for Cost Per Mille before we first did (in 2012).
What does CPM mean?
CPM stands for Cost Per Thousand (as M is the roman numeral for 1,000). It is one of the three most common ad pricing models used along with CPC and CPA. The impressions referenced are ad impressions – which means one load of an ad.
The equation can also be used for page impressions, although that is far less common. This ad pricing model is the basis of valuing all ad inventory. This is because the best way to compare campaigns (which are using a variety of different pricing models) is to work out an eCPM for each one.
eCPM stands for Equivalent Cost Per Thousand. And it means using the CPM formula to work out the CPM cost of non-CPM campaigns.
Consequently, it makes sense to think of eCPM as the price per kilo of the online advertising world (eg an easy way to compare prices across sites and platforms).
How does CPM work?
So for example, if you purchase 1,000,000 ad impressions at £3 CPM you would pay £3,000 for it. This is because for every £3 you spend, you are getting 1,000 ad impressions.
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CPM is the most advantageous type of advertising deal for website owners. In most cases, as you are simply selling ad space, and it doesn’t matter how it performs. Consequently, it’s also usually the worst type of deal for advertisers.
Note: Due to this ad pricing model, 1,000 ad impressions are essentially considered to be one unit of advertising. It’s a convenient measure, as one-click in 1,000 ad impressions comes to a CTR of 0.1% which is the overall display advertising average of the internet.
What is the CPM Formula?
The Cost Per Thousand equation is calculated as CPM = (Ad Spend ÷ Ad Impressions) x 1000.
You can also calculate CPM in the following ways (as well as by using this calculator):
- Ad Spend multiplied by 1,000. Then divide the result by Ad Impressions.
- Weird version: CTR multiplied by CPC multiplied by 1,000
Why RPMs are lower than CPMs
While CPM is the amount paid by advertisers, it is not the amount received by websites. Revenue Per Thousand (in short RPM) is the website’s revenue equivalent.
The difference occurs because of the associated ad serving fees and costs from an ad campaign. Also, please note that CPM is still often casually used as meaning the same thing as RPM. Therefore, always check what someone is referring to if you are confused.
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Then again, it shouldn’t be confused with;
- CPVM – Cost Per Viewed Thousand: This is where viewed impressions are used instead of ad impressions (viewed impressions are ones that were definitely on-screen.
- CPV – Cost Per View: This is the price per individual view of something (usually a video). If this was used for display advertising, it would mean paying for each individual ad impression. Rather than per 1,000 ad impressions.
- RPM – Revenue Per Thousand: This is the amount of revenue a website receives per 1,000 impressions, rather than the amount an advertiser pays. The difference is detailed in the “Technical Information” section above.
- eCPM – Equivalent Cost Per Thousand: While this is essentially the same as CPM, the difference is that this is a measure used to compare non-CPM campaigns, and is not an ad pricing model but a metric.
Should I be selling ads on a CPM basis?
Of course, my simple answer is yes: if you are getting a reasonable amount of money for your inventory.
It makes sense to sell ads on a CPM basis if:
- First, you have a lot of inventory, but no much capability to optimize your ad campaigns.
- Secondly, if you have premium inventory, and customers will pay for the privilege of being on your site (Brand advertising).
In the first case, you can expect a very low CPM. As you are literally just dumping your inventory on the market. And in the second case, you could expect a quite high CPM. But only if your inventory lives up to the hype and performs well.
In all cases, it makes sense to try and optimize ad campaigns on your site. For example, do what you can to improve your Page CTR as that will increase the CPM value of your inventory.
How do I run a CPM campaign?
You can just set up a CPM campaign and let it run if you like. All that you are guaranteeing in most cases is a certain amount of inventory. So, you don’t actually have to do anything to it if you don’t want to. You should probably try and optimize the campaign. At least a little if you want repeat business, however, but it’s up to you.
You should, however, make sure to not oversell your inventory. If you strike a deal where you guarantee a certain amount of impressions, then you should make sure it is no more than about 80% of your predicted impressions. Whatever is leftover, you should fill with a remnant network.
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This is because the only major way to mess up a CPM deal is to under-deliver. So, 80% is usually the maximum safe amount you can sell. If your ad server doesn’t predict impressions, then your best bet is to base your predictions. Particularly on what was delivered the month before.
If you sell a deal with a frequency cap on it, this reduces your available impressions a lot more. It’s very difficult to work out how many you are left with. And the only completely foolproof way to really work out the amount your site can take with a frequency cap is by trial and error, unfortunately.
How to Optimize CPM campaigns
As stated above, you don’t have to optimize CPM campaigns. However, it’s just good practice to try and get the best CTR possible. This encourages repeat business as well as increasing the overall value of your inventory for future deals. Having better stats to use when selling just makes sense.
To optimize a CPM campaign is just the same as a CPC campaign (improving CTR). Except that you should probably set the frequency cap to 3/24 if your site can bear it. To improve CTR put more ads on any placements with a higher CTR and fewer ads on any placement with a lower CTR.
You can work out what CPM price to sell at by starting selling your ad space with an RTB Platform such as AdSense. Whatever eCPM you get from them, sell at a CPM price ever so slightly higher than that and it will be worth your while.
If you are signing up for an ad network, they will likely tell you how much they think your inventory is worth on a CPM basis. Again – if you are using AdSense or similar as your backup, make sure that the CPM you get from them is better than the eCPM you were already receiving.