Cost per Mille (CPM) is a common advertising pricing model in which advertisers pay a predetermined rate for every one thousand impressions of their ad. This pricing model is commonly used for online display advertising, including banner ads, in-stream video ads, and other forms of online advertising.
How CPM Works
With the CPM pricing model, advertisers pay for every thousand impressions of their ad, regardless of how many clicks or conversions the ad generates. An impression is counted each time an ad is served to a user, regardless of whether or not the user interacts with the ad. Here’s how it works:
- An advertiser creates an ad and decides on a budget for their campaign.
- The advertiser then chooses a platform, such as a website or social media platform, to display their ad.
- The platform calculates the number of impressions the ad is likely to receive based on factors such as the ad’s placement, the target audience, and the advertiser’s budget.
- The platform charges the advertiser a cost per thousand (mille) impressions, which is based on factors such as the ad’s size and format, the competition for ad space, and the target audience.
- The advertiser’s ad is then displayed on the chosen platform to the target audience.
- The platform tracks the number of impressions the ad receives and charges the advertiser accordingly. For example, if the platform charges $5 CPM and the ad receives 10,000 impressions, the advertiser would be charged $50.
How CPM is Calculated
The formula for calculating CPM is:
CPM = (Cost of Ad / Number of Impressions) x 1,000
For example, if an advertiser pays $1,000 for 100,000 ad impressions, the CPM would be:
CPM = ($1,000 / 100,000) x 1,000 = $10
This means that the advertiser is paying $10 for every 1,000 ad impressions.
Benefits of CPM Advertising
CPM advertising offers several benefits for advertisers, including:
- Increased brand awareness: By reaching a large number of users with their ad, advertisers can increase brand awareness and exposure.
- Cost-effective pricing: With CPM pricing, advertisers only pay for the number of impressions their ad receives, making it a cost-effective option for brand awareness campaigns.
- Targeted advertising: CPM advertising allows advertisers to target their ads to specific audiences, which can increase the relevancy and effectiveness of their ad campaign.
Challenges of CPM Advertising
While CPM advertising offers several benefits, it also presents some challenges for advertisers, including:
- Low click-through rates: Because advertisers pay for impressions rather than clicks, CPM advertising campaigns may have lower click-through rates than other pricing models.
- Ineffective ad placements: Advertisers may have little control over where their ads are placed, which can result in ineffective ad placements that do not reach their target audience.
- Ad fatigue: When users are repeatedly exposed to the same ad, they may become fatigued and less likely to engage with the ad, which can decrease the effectiveness of the ad campaign over time.