Today’s world of advertising involves numerous approaches and pricing models. One of these is CPM advertising. The concept behind this model is you pay based on the number of ad impressions achieved.
Even though this sounds like a great deal (and it is!), there’s more to CPM advertising than just knowing its definition. While the basic principle is very straightforward, there are many intricacies and nuances to CPM advertising. So, if you want to understand what CPM advertising is before taking the plunge, be sure to keep reading. In this article, we explore this topic in great detail to help you determine whether this marketing investment is right for you.
What Are CPMs?
CPM is a pricing model that mostly applies to digital marketing. Using this, you only pay for the number of impressions that your ad receives. To give you a quick idea of what CPM advertising is in numerical form, consider the formula below:
The resulting number represents the average amount that you pay using the CPM advertising model. However, the value of CPM only represents what one service charges. It doesn’t give you the whole picture of what the average CPM advertising cost is. To find out how much it will cost on your end, you need to find out the eCPM (or the effective cost per mille):
How Does CPM Work?
Remember how we mentioned that the CPM applies specifically to digital marketing? This pricing model is impossible to enforce in non-digital forms with a high level of numerical accuracy. So, where will you normally see CPM advertising? It is usually seen as a pricing model within native advertising: an advertising solution that gives users a seamless transition from content to ad. However, CPM advertising can be used anywhere people can view an ad. This is because this metric only takes into account the number of impressions (or the number of times people see your ad), as calculated using the formula in the previous section.
Advantages of the CPM Advertising Pricing Model
Using this pricing model has proved to be beneficial for both advertisers and publishers. To help our readers in both the advertising and publishing sector, we created separate subsections discussing the benefits specific to them. However, whether you’re an advertiser or publisher, you may be wondering: will utilizing CPM advertising be beneficial to me? It’s definitely worth trying out if you believe that:
- The preconditions to getting the advantages describe your situation;
- Or the advantages of CPM advertising align with the results that you want to achieve.
But don’t take our word for it! See for yourself just how powerful and convenient this advertising model can be.
CPM Advertising Advantages for Advertisers
If you’re an advertiser, you know that the ultimate measure of a successful campaign is the difference between the revenue generated and the ad spend. For many, this means that you’re always looking for the most cost-effective way to generate results. That’s where CPM advertising comes in. It is a great starting point for those who don’t want to focus all of their efforts on conversion in addition to the other advantages listed below.
It’s Great for Improving Brand Awareness
If you’re advertising for a new business that’s building its client base from scratch, CPM advertising is considered an effective way to proceed. It sends out the message that the business exists and is ready to serve the market. On top of brand awareness, you’re also free to introduce elements that encourage users to take action. For example, you include the date of a BOGO promo on the CPM advertising ad. The viewer will be more likely to visit the shop or site. But even if only brand awareness is the goal (which can mean no actual revenue is generated), it’s still worth the spend. CPM advertising opens viewers up in the future to hear more about what the business offers.
It’s Very Affordable
Anyone in the advertising industry knows that affordability is one of the biggest selling points of CPM advertising. So, if you’re trying to get the word out about a certain business promotion, this is a very affordable way to do so. In addition, it will allow you to reach different audiences. Just note that our concept of something being expensive is relative. If you’re using CPM advertising for the right goals and reasons, then it’s pretty cost-effective. However, if you’re looking to convert right on the sport, this investment can seem expensive.
CPM Advertising Provides Trackable Results
Very rarely in advertising can someone guarantee results. However, your chances of getting what you paid for are higher with CPM advertising. Remember how, with this pricing model, you pay per thousand impressions? This means that every cent you spend goes into a promised result. You know exactly where your CPM advertising budget is going. As an advertiser, having this information is helpful because it eliminates the guesswork. Although, this only holds true if the impressions aren’t coming from bots or the same few people. In addition, what the viewers will do in response to seeing the ad is beyond what CPM can deliver.
CPM Advertising Advantages for Publishers
It’s not only advertisers who can benefit from using the CPM advertising price model. As the seller and source of the impressions, this type of advertising opens many opportunities that publishers can take advantage of. Unlike CPM advertising advantages for advertisers, where the benefits primarily center on spending, many advantages for publishers are tied to income-generating capabilities. If you don’t like taking risks when it comes to revenue, CPM advertising is a great fit.
It Creates a Simple Revenue Metric Tool
What is the current earning capability of your website? This may be harder to measure if you’re relying on clicks or installs to earn. But with CPM advertising, it becomes so much easier. The number of impressions an ad creates is easy enough to find in most ad dashboards. So, if you know the current CPM, you just need to divide the number of impressions by 1,000 and multiply it by the CPM advertising rate. That’s how much you’ve earned for the day, week or month. If you’re aiming to reach a certain amount earned, you know you’ll just have to widen your customer base to achieve it.
It Offers More Stable Revenue
What does CPM offer that other pricing models can’t? Stability and predictability. For example, let’s say that your site gets 1,000 unique visitors per day, and an advertiser pays you $1 CPM for CPM advertising services. If all 1,000 unique visitors reach the page where the ad is displayed, you will receive $1 per day.
Now, we understand that earning a dollar a day doesn’t sound impressive. But if your site gets a lot of visitors, the earning potential through CPM advertising expands as well. Other pricing models may be able to offer more, but they usually depend on the user taking a certain action, like clicking a link. So, there may be days when you’re earning a lot and other days when you earn nothing at all.
Is Less Risky for Publishers
In a CPM model, publishers are compensated based on the number of impressions their ad space generates, regardless of whether users interact with the ad (e.g., clicking on it) or take any specific action. This means that publishers are guaranteed a set revenue for every 1,000 impressions, providing a level of predictability and stability in their earnings.
Overall, CPM provides a more stable and less volatile revenue stream for publishers, allowing them to focus on creating quality content and maintaining a positive user experience on their platforms. It offers a level of financial security that can be especially valuable in an industry where revenue can sometimes be unpredictable.
Disadvantages of the CPM Advertising Pricing Model
You may be asking, what’s the catch? Having CPM advertising in your arsenal may be useful in many cases, but it’s not without its drawbacks for both advertisers and publishers. In the following subsections, we discuss the specifics from these two viewpoints. For your convenience, we categorized the CPM advertising disadvantages using these two key players. You can choose to read only the section that pertains to you. However, if you’re a publisher who wants to better position CPM as a service, knowing the disadvantages to advertisers may be in your favor.
CPM Advertising Disadvantages for Advertisers
In the spirit of diversification, many advertisers test various pricing models to get more exposure for their ads. The success some companies have gotten using CPM advertising may have further encouraged them to explore this avenue for their next campaign. However, as effective as this type of advertising can be, this doesn’t mean that a CPM ad will always yield acceptable results. As an advertiser, you may also be exposing yourself (and your advertising budget!) to the following drawbacks.
Traffic Quality Is Not Guaranteed
What is CPM ad spending going to get you? All you know is that you’re getting traffic. Although getting a lot of eyeballs on your ad is good, it will not necessarily translate into good CPM advertising results. For example, if the impressions you’re getting are from users who are mostly interested in shoes, your ad on DIY earrings may not have a lot of impact.
So, in this case, what are CPM ads good for? Even though the outward metrics are showing that your ad is getting a lot of exposure, it may not actually be helping to improve important KPIs like brand awareness. That’s why CPM advertising must only be used with reputable advertising networks that are truly interested in delivering results.
Only Impressions Are Measured, Not Actions
As we mentioned, CPM advertising works well if your goal is to promote brand awareness or an upcoming offer. This is because you only need to spread the word, so to speak, for a CPM ad to be deemed effective. But if measuring the number of users who perform an action is important to you, then CPM advertising won’t be enough. For example, if you want to know how many people are clicking your ad, a CPM alternative would be more appropriate in this case. If the intentions of your campaign aren’t aligned with what CPM can offer, you’re better off exploring other pricing models.
CPM Advertising May Not Offer Accurate Metrics
To be clear, this isn’t the case for all places that offer the CPM pricing model. That’s why it’s important to look into the reputation of the CPM advertising publisher or advertising network that you’re partnering with. Still, among all the options available to you, this model is one of the most prone to fraud. The CPM pricing agreement may not guarantee that your ad is being exposed to unique users. You may be paying to have your ad seen by a small group of users over and over again — or even worse, by bots. This means your CPM advertising campaign isn’t doing what it is intended to do: improve brand visibility. Fortunately, this may not be much of a problem in the near future if the technology surrounding CPM improves and becomes more accessible.
CPM Advertising Disadvantages for Publishers
Publishers may love that this pricing model allows a consistent income stream, but at what cost? The main concern for publishers is the income derived from the CPM pricing model — a common theme seen in the list of disadvantages below. But to delve deeper into what really creates the income issue, keep reading. We discuss these potential CPM advertising issues in more detail to help you decide whether this is your best option.
It May Only Work for High-Traffic Sites
What does CPM advertising accomplish in terms of revenue generation if there’s not enough traffic? Put simply, in order to get the views (and the revenue), you need to have people on your site. Mind you, this issue doesn’t just occur with CPM advertising. High-traffic sites are naturally going to generate more revenue compared to low-traffic sites simply because there are more users to advertise to. Even if you go with an alternative to CPM advertising, you’ll always be better off if there’s more traffic.
Revenues Are Generally Lower
Even for publishers who are doing everything right, the revenue for CPM advertising is going to be lower. This is because the going rates for CPM ads are just lower. Leads and buyers are seen as more valuable compared to mere eye traffic, which is what CPM primarily offers. In exchange for the lower revenue stream, participants benefit from the stability of advertising income. So, if you want to offset this negative effect of CPM advertising, consider other ways to make money from your site, such as accepting sponsorships or exploring additional pricing models available.
CPM Advertising May Not Be Compatible with the Traffic’s Demographics
It’s always worth asking: what kind of audience does your website attract? Even though you’re earning well from CPM advertising, perhaps you’re not maximizing its earning potential. This could be the case if:
- You’ve never tried other pricing models;
- You settled on CPM in digital marketing because it’s relatively easier to execute;
- Your site visitors are more likely to click (which is more profitable than an impression).
For any of the cases mentioned above, it’s worth considering whether CPM advertising is truly the best route for your site. However, keep in mind that using a combination of different models is always an option if you want to diversify.
Exploring the CPM Cost Model: What Similar Types of Pricing Models Are There?
As digital marketing grew throughout the years, more pricing models were created to respond to the growing demand. The concept behind using CPM advertising is attractive for the right audience. But as you’ve learned, it has its shortcomings. So, what other models are out there for those advertisers who want a results-based payment model? Assuming that the payment structure associated with CPM advertising works for you, there are other similar advertising structures that you may want to check out, like the cost per acquisition and revenue sharing models. Read the next subsection to learn about other common CPM advertising alternatives.
Similar Pricing Models to Consider
If paying based on impressions isn’t a good fit for your campaign, below are some other common pricing models that are alternatives to CPM advertising.
- Cost per click or pay per click (CPC or PPC): The advertiser pays the publisher for every click the ad gets.
- Cost per install (CPI): In this model, the advertiser pays every time a user installs the advertised app. Another related metric is installs per mille, which is the number of installs for every 1,000 impressions.
- Cost per lead (CPL): Using this metric, the publisher is paid every time the form generates a new lead with crucial audience information.
There are other models, too, but in all of them, the advertiser pays every time a certain action is performed.
What Are CPM Rates and What Affects Them?
What is a CPM rate? The term refers to what you pay for every one thousand impressions that your ad gets. If you’re interested in getting the best deal possible here, you should understand what affects your CPM rates:
- The target of your campaign;
- The duration of your campaign;
- The reputation of the publisher;
- The industry that you want to advertise in;
- The site where you’re running the CPM advertising campaign.
Your chosen advertising platform can also have an impact on available rates. So, now is the time to use this information to your advantage.
What Is a Good CPM Price? It’s All Up in the Air!
As you’ve seen in the previous section, there are many factors that can affect your CPM price. Fortunately for advertisers everywhere, CPM advertising is one of the more affordable options. This means that you’ll be able to stretch your dollar further using this pricing model. If you’re truly set on getting the best price for CPM advertising, we advise the following:
- Consider publishers with smaller but more engaged audiences;
- Avoid over investing in impressions to keep your total CPM spending low;
- Diversify your ad audience based on market segments and CPM.
How Can You Maximize CPM Advertising ROI?
If you’re an advertiser, your goal is to see an uptick in some important metrics based on your CPM campaign. Meanwhile, the goal for publishers is to get large returns. But, there’s one thing both parties can agree on: to fully appreciate what CPM in digital marketing is, it’s important to be able to earn revenue from it.
For any type of advertising, returns are never guaranteed. Therefore, it’s imperative that you balance the risk with the results that you’re expecting. This means that both ends of the transaction need to determine a CPM rate that is acceptable based on the desired outcome.
If you’re an advertiser who wants to get the biggest potential returns from CPM advertising, you should be aware that this isn’t the more common choice when trying to generate sales. However, this doesn’t mean you won’t get returns from using CPM advertising. Every impression is an opportunity to strengthen the brand, which brings prospects a step closer to buying. If you want better returns from CPM advertising, you can include a promo code in the ad. This will allow you to track the results, evaluate the overall effectiveness and make changes to the ad based on your evaluation.
As a publisher, the only thing that you need to do to increase your ROI from CPM advertising is to increase your site’s traffic. There are a few tactics that we recommend you apply either on their own or together to increase site traffic and your average CPM bid:
- Maintain active social media profiles to drive users to your site;
- Improve your on- and off-page SEO to increase your odds of appearing in organic search;
- Use CPM advertising to increase brand awareness;
- Create high-quality content to improve user retention;
- Send an email with your site link to your email list, if applicable.
To Do or Not To Do: CPM Advertising. How to Choose the Right Model for Your Campaign
If you want to create an effective advertising strategy, you need to select the pricing model that works best for your goals and budget. As a general rule, CPM advertising isn’t the best option if you’re looking for leads or revenue: this model works best for increasing brand awareness. Whereas, it’s obvious what the cost-per-action pricing models are best suited for. For example, a cost per install is a good choice over CPM advertising if you’re advertising a mobile app and want people to install it. However, a good advertiser will always use a mix of these to be able to achieve multiple goals at the same time.
Strategies for Maximizing CPM Advertising Campaigns
A well-thought-out strategy is a key to your success. So, you can’t afford to just pay a publisher for impressions and hope for the best! If you have decided that CPM advertising works best for your goals, consider these strategies to maximize the impact of your campaign.
- Use different publishers: This will help expand your CPM advertising market reach by accessing different audience bases.
- Find the balance: You want audiences to remember your brand, but you also don’t want to annoy them by showing them the same CPM advertising banners over and over again.
- Consider the user’s level of awareness: A user who is solution-aware can be presented with the brand as their best choice.
CPM Advertising FAQs
How is the cost calculated in a CPM campaign?
The cost for this type of campaign is calculated based on the number of impressions that you receive. So, for the cost, just calculate the CPM advertising rate for every thousand impressions. For instance, assuming a rate of $10 for every 1,000 impressions, you will pay $100 for 10,000 impressions.
What is CPM in ad spending?
This is the cost per thousand impressions that the ad gets. Most, if not all, analytics dashboards show this metric to demonstrate the visibility the ad gained.
What is considered a good CPM rate?
There’s no standard rate for what should be considered a “good” rate. It highly depends on the industry you’re in and how competitive the bidding is. Therefore, you’ll get a better rate where there’s less competition to drive up costs.
How can I lower my CPM cost?
There are a few things that you can try, including:
- Focusing on a niche audience where the bidding is less competitive;
- Setting a daily limit for your advertising budget;
- Lowering the frequency that users can see your ad;
- Performing split testing.
Is the CPM pricing model suitable for small businesses?
Small businesses that want to improve their brand awareness can greatly benefit from the CPM model. It is more affordable than other options, making it more cost-effective to widen the exposure of your business through ads.
What influences CPM prices in a campaign?
Various factors can influence what you’re paying for impressions. These include:
- Supply and demand for the ad space;
- The CPM advertising platform used;
- Audience size;
- Target market location;
- Presence of bots on your chosen publisher’s platform.
Which industries will benefit the most from using the CPM model?
Every industry can benefit from using the CPM model because widening brand awareness is an ongoing task. It’s a cheap and effective way of reminding your audience of your business and what it offers.
Can the CPM advertising model be used effectively in conjunction with other pricing models?
Definitely, as an advertiser, it’s always a good idea to diversify your budget to see which pricing models yield the most promising results. From there, you can adjust the budget allocation to help you achieve your desired results.
What’s a CPM ad network, and how does it help advertisers and publishers?
A network like this is a collection of advertisers and publishers interested in buying and selling ad space, respectively. Basically, a CPM advertising network connects advertisers to publishers within their niche. This helps improve the impact of the ad and improve the reputation of the publisher as a place to advertise.
What Does CPM Mean for Advertising? A New Opportunity!
Eliminating that uncertainty when it comes to the advertising budget creates an opportunity to have more control over the effectiveness of your campaign. Are you looking for opportunities to explore results-based pricing models like CPM advertising? Native advertising incorporates this into its structure! It puts your ad where it’s most relevant so that every click you pay for has a higher chance of conversion. Explore native advertising and register on the MGID platform to gain access to top-notch tools, a personal manager invested in your success, a team of expert creatives and a wide network of high-quality publishers to help make your CPM advertising goals a reality.