First, lets dig in to what CPM actually stands for. CPM is short for cost per mille, where mille is short for thousand. In other words, this is your cost per 1000 units, users, ect. Typically this term is used in online marketing and advertising to describe the cost per 1000 ad views or clicks.
So how is this calculated with respect to advertising? It’s a simple equation.
CPM = Cost Per Click*Click Through Rate*1000
Cost Per Click – This is the total amount of money you will spend for each user that clicks on your ad. This is typically set up by your ad provider or set in your ad campaign. This can vary greatly depending on industry. for example, google ads can vary between $0.10 – $10.00 depending on the niche.
Click Through Rate – This is the total percentage of people that will click on your ad when seen. Often hovering around 1% for ad networks, this is mostly dependent on the design and content of your ad.
Calculate the CPM of your advertising campaign. Enter your cost per click, and click through rate to determine your total cost per 1000 ad views.
Often times, CPM can be substituted for RPM. Instead of cost, this is revenue per 1000 visitors. This usually used by website owners to determine how well ads are performing on their website.
For instance, if you place an ad at the very bottom of an article, most people won’t see it, therefore, the click through rate of that ad will be extremely low. This will hurt your RPM greatly. As a result website owners try to maximize RPM. For more information on this, visit our RPM calculator.
Why is CPM important?
In truth, CPM isn’t the only metric that advertisers look at, but it’s often the first place they start. That’s because the equation for this takes into account the total cost and percentage of clicks.
The total cost of an advertising plan is usually the starting point for all marketers. You’re given a budget and and told to produce a campaign with that as the limit.
The next thing you need to do is create ads that maximize clicks. This is because typically you want to reach as many people as fast as possible. If you’re only getting a .25% click through rate, it may take a long long time to reach your goal.
As you can see CPM really is the starting point for ad campaigns and RPM is the starting point for publishers of those ads.