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What Is CPM (Cost Per Thousand)? Definition, Importance, And Significance

What Is CPM (Cost Per Thousand)? Definition, Importance, And Significance

What Is CPM (Cost Per Thousand) Definition, Importance, And Significance

What is CPM? – CPM or Cost Per Mile is a popular phrase in marketing. The value indicates the price of every one thousand advertisement impressions on a webpage. The term is also known as “Cost Per Thousand.” Actually, the word ‘mile’ is a Latin term which means thousand. You will find this term mainly in the world of programmatic advertisement.

In this article, you will learn some general details on Cost Per Mile (CPM). We will first discuss its definition and how the system works for marketers. Apart from that, you will also learn the importance of this pricing system. Finally, we will show you how to calculate the CPM for an advertisement. Hence, to learn more, read on through to the end of the article.

What Is CPM (Cost Per Mile)?

What Is CPM (Cost Per Mile)

According to Amazon Advertising,

Global programmatic advertising spending has doubled in the past four years and is expected to grow by more than more than $40 billion by 2023. As the online advertising industry continues to expand (programmatic advertising now accounts for more than 89% of all digital display ad spending), it’s important to understand some of the key terms that make digital advertising tick.

In programmatic advertising, advertisers and marketers deal with the automated buying and selling of digital advertising inventory. These inventories include both display and video formats. Such advertising uses two types of platforms – demand-side and sell-side.

In the demand-side platform, there is software. This software helps automate the purchase and management of digital advertising inventory from various ad publishers. On the sell-side (supply-side) platform, there is another software for publishers. The latter use this software to automate the management and sale of advertising inventories.

This is where the CPM (Cost Per Thousand) comes into play. They help in measuring programmatic ads per thousand impressions. This is a pricing model where you are paying a certain price for one thousand impressions of an advertisement. If your ad appears one thousand times on your webpage, you pay for that. Advertisers make payments either every month or every quarter, based on the plan they choose.

How Does Cost Per Mile Work?

How Does Cost Per Mile (CPM) Work

According to Investopedia,

Cost per thousand (CPM) is a marketing term used to denote the price of 1,000 advertisement impressions on one web page. CPM is a metric that helps companies measure how efficient their advertising is by telling them how much money is paid for a single click on a website ad. For instance, an advertiser must pay $2 for every 1,000 impressions of its ad if a website publisher charges $2 CPM.

CPM is one of the most popular pricing methods for online advertisements. This is the cost that an advertiser pays per one thousand advertisement impressions on a given webpage. The impression consists of a metric that consists of the number of times a viewer engages with the ad or views the ad. Some other pricing methods of online ads include – Cost Per Click and Cost Per Acquisition.

However, this method does not always work and can give incorrect counting of ad impressions. This can occur when there is advertising fraud, duplicate views, or failed loading of ads.

Nevertheless, CPM (Cost Per Thousand) is still important. This is because it helps to analyze different types of advertisement campaigns. Advertisers who are working in focused messaging, personalized ads, and brand awareness use this system of pricing. This is because this system captures the exposure of ads through clicks.

What Is The Importance Of Cost Per Mile (CPM)?

What Is The Importance Of Cost Per Mile (CPM)

In earlier times, a company only had a few options to advertise its products and services to the public. These include print, television, and radio. However, with changing times, especially with the advent of the internet, online advertising increased. Hence, the need to get the idea of advertisement metrics increased. Advertisers wanted to know how well their advertisements were working. This is where the CPM method helped advertisers.

According to AppsFlyer.com,

Cost per thousand is the pricing model used for certain programmatic ads in the programmatic ecosystem. In the real world, this works best for larger publishers because advertisers pay a set price based on the number of impressions an ad placement receives — either monthly or quarterly.”

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Furthermore, CPM is also important since it is appropriate for different types of ad campaigns. You can measure digital advertising with different digital marketing metrics. These include how often an advertisement appears, how often people click the ad, whether it leads to a sale or not, etc. This also shows whether the pricing of the ad can be tailored to the ad’s function.

In addition to that, there are some pricing methods that are appropriate for certain types of ad campaigns. Advertisers that focus more on brand awareness or want to deliver a specific message use this pricing method. This is because this pricing model focuses more on the exposure of the advertisement as opposed to the cost-per-click model.

How To Calculate Cost Per Mile (CPM)?

How To Calculate It

There are a variety of factors that can affect the rate of the CPM. The rate can sway by the time of the year or by season. This is because holidays also leave a strong influence on advertisement impressions. Hence, depending on the product or service on the advertisement pitch, there are changes in the CPM rate as well.

If you want to calculate the rate of CPM (Cost Per Thousand) of your advertisement campaign, consider the formula below:

Cost Per Thousand, CPM = (Total Spendings on Campaign / Number of ad impressions) x 1000

For example, if you paid an ad publisher $3000 for the advertisement, and the ad received 600,000 impressions, then you paid $5 for every one thousand ad impressions.

Summing Up

Hope this article was helpful for you in getting an idea of what is CPM (Cost Per Thousand), and how it works for marketing and advertising. You can see it is the cost an advertiser pays per one thousand ad impressions to an ad publisher. Do you have something more to add regarding CPM? Share your information with us in the comments section below.

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