What Is CPM in Digital Marketing & What Influences It?

The spending on digital advertising increased by 12% in 2020, with social media ad revenues reaching $41.5 billion. According to Statistica, the impression numbers, year-on-year, have risen by 20%.

Daniel

Most consumers conduct online research on products before they make a purchase. Thus, it makes sense that companies invest in online advertising to reach their target market. With more and more people spending time on their smartphones and social media platforms, investing more in digital advertising is the way to go.

In terms of digital advertising, there are many terms, platforms, and more that marketers need to understand. “What is CPM in digital marketing” is merely one of these, so here’s a detailed look at this concept and what it means for your business.

What Is CPM in Digital Marketing and What Does It Stand For?

CPM stands for cost-per-thousand or cost-per-mille. The “M” stands for the Latin term for “thousand,” which is mille.

Cost-per-thousand is a marketing term. It refers to how much an advertiser pays for 1,000 impressions when they run a digital advertising campaign. Thus, CPM measures how many thousands of people your piece of advertising has left an impression on.

What is an impression? Also known as ad views, it is a metric that measures how many digital views a piece of content has had. Alternatively, it quantifies how many viewer engagements the content has received. In this case, the content would be the advertisement.

Thus, the impression merely indicates how many times an advertisement was displayed on a website. It does not measure how many times the ad was clicked on, which is what a click-through rate (CTR) tells you.

Important to note, however, is that only the potential audience is measured. When an individual sees your ad, there is no guarantee they will take action by clicking on the ad.

Back to the cost of the advertisement. If the CPM bid is set at $3.00, the advertiser would pay $3.00 for every thousand impressions their ad receives (more on this formula in a bit).

How Does CPM Work?

CPM is a popular metric that is used in online advertising, marketing when it relates to web traffic, and advertising media selection. Most advertisers are familiar with GoogleAds, which works on a CPM basis, as well as a cost-per-click (CPC) basis.

You might wonder why CPM works in thousands. Well, it is because an impression is usually small, so it makes sense to measure it in terms of thousands.

A CPM model also lets the advertiser know how aware their target audience is of the company features in the advertisement.

What Is the Formula for CPM in Digital Marketing?

To calculate the cost-per-thousand, take the total ad spend and divide it by the impression total. Use this number and multiply it by a thousand.

The formula for CPM is as follows:

CPM = (total ad campaign cost or spent / total number of impressions measured) x 1,000

You can also use free online CPM calculators to help you figure out what your cost-per-mille is.

An example would be the following:

If your digital ad campaign spend is $5,000 and you’d like to receive 800,000 impressions, then your CPM rate would be $6.25.

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What Influences CPM?

Now that we’ve answered the question “what is CPM in digital marketing”, it’s time to find out what influences CPM. There are various factors that influence the CPM in digital marketing campaigns but they can generally fall into one of these 4 categories.

Audience

One of the main factors that affect the CPM is the audience. In this category, you also look at the country your target audience lives in and the device they see the ad on.

Where your audience is located gives you insight into the spending power of the audience. The lower the consumer spending power, the lower your cost-per-mille rate as advertisers bid less for impressions.

Moreover, it tells you how advanced (or not advanced) the online ad industry is. Interestingly, the CPM rate for digital advertising is higher in countries where English is the main language or where the economy is surging.

With the device the individual views the ad on, you learn about user interactions and user experience. While mobile search is overtaking desktop search, most consumers still click “buy” on a desktop PC, thus the conversion rate is higher here.

Factors like the screen size, connection speed, and how they connect to the internet are important too. On a mobile device, your audience could be limited by how much data they have available.

Your CPM may be higher if you target your ads at desktop users and users who have an iPhone since they are generally more affluent than those who have less expensive phones.

Context

Another factor that affects CPM in digital ad campaigns is the context. This refers to the audience intent, the quality of the ad space, and even how long a visitor stays on a web page that displays the ad.

Where a buyer is in the sales funnel affects the intent of the audience. If the visitor views a page about product comparisons or reviews, they are much closer to the bottom of the sales funnel and making a purchasing decision.

Compare this to a visitor who is reading through an informational article on how to use a product. They are at the beginning of their buyer's journey, and whether they will continue through the sales funnel isn’t a given.

Thus, someone who is near the bottom of the funnel and ready to click “buy” is more valuable. And this results in a higher CPM.

With regard to visitor depth and ad space quality, you’ll find that you’ll have a higher CPM on social media sites in comparison to non-social sites. Why? Because people tend to spend more time on social platforms like YouTube and Facebook. This is why monetised ad payback on these sites is so high.

For example, on average, 1,000 impressions cost the following on these 4 popular social media sites:

Instagram has the highest CPM at $7.91, followed by Facebook at $7.17, LinkedIn at $6.59, and Twitter at $6.46. With more than 200 million users that actively visit Instagram daily, it makes sense that the ad costs are more.

Environmental Factors

Yes, things like the season do influence the CPM. For example, if you advertise retail products during the gift-giving and buying season at the end of the year, your CPM will be higher. And, if you advertise summer clothing and swimwear during the summer months, then your CPM will rise too.

You should also think about Black Friday and Cyber Monday. Historically, these are days that consumers spend more. With an increase in spending, your cost-per-thousand rate will be higher.

There are also other environmental factors you should consider. Things like the economic outlook or what’s happening in the news cycle cause your CPM to shift. During an economic depression, your CPM will decrease; however, during an economic boom, it will increase.

On-Page Elements

On-page elements, such as where your ad is placed and ad viewability, also affect the CPM. While you may think your ad needs to be above the fold, or at the top of the page, this isn’t always the best place.

The ideal location to place your ad on a web page is where the web visitor will linger, or stay the longest. This could be in the centre of the page. In terms of ad viewability, your ad is counted as “viewed” if 50% of your ad is displayed on a screen (mobile or desktop), or in the viewport, for at least one second.

Your ad won’t be counted as viewed if the visitor is just scrolling through the web page. They need to engage with the content. Another on-page element that may raise your CPM cost is how big your ad is. Everyone competes for attention. The bigger the ad, the more likely it is to be seen and get attention (and hopefully, get engagement). As such, your CPM rate will be higher if your ad size is bigger.

Yet another CPM-influencing aspect is whether your ad is in video format or animated. Animated ads attract attention, but this means the visitor is paying more attention to the ad than the content. Thus, flashier, more complicated ad formats come with a higher advertising campaign cost.

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Final Thoughts on CPM in Digital Marketing

As an industry-standard metric, CPM has been used in digital advertising campaigns for a long time. If someone asks you, “what is CPM in digital marketing?”, you know to answer that CPM is how much you pay as an advertiser for every 1,000 ad views.

The importance of knowing your CPM metric is that it gives you insight into your brand awareness. You’ll know how many people you are reaching with your ad budget. It also tells you how your ad campaign is performing, especially if you combine it with conversion rate and CTR metrics.