CPM is an abbreviation that stands for Cost-Per-Mille (meaning cost per thousand impressions). Advertisers use CPM to compare how much it costs to get different ads and channels to reach people. Since CPMs can vary significantly from channel to channel, it’s usually best used to compare different strategies, placements, or other factors on the same channel.
CPM Formula:
CPM = (Spend/Impressions) x 1000
CPM is used by advertisers who incur the cost of advertising. RPM is the corresponding term for the media or creator, referring to Revenue-Per-Mille. Depending on the situation, the CPM and RPM may be the same or different.
Example of CPM & RPM being the same: An advertiser spends $100 sponsoring a Youtube video and the ad gets 10,000 impressions for a CPM of $10. The Youtuber receives the full $100, making their RPM $10 as well.
Example of CPM & RPM being different: An advertiser spends $100 on Youtube ads through Google’s ads platform. They get 10,000 impressions on their ad, making the CPM $10 again. However, the Youtuber only earns $30 and Youtube keeps the remaining $70. The Youtubers RPM is $3 in this case.
How do advertisers use CPM?
CPMs are just one of many factors marketers consider when evaluating whether or not a channel may be a good fit for advertising a business. It’s reasonable logic to assume that everything else being equal, an ad that is shown more times to more people will outperform on that is shown fewer times to fewer people.
With that considered, not all impressions are created equal. Time, trust, engagement, etc are all valuable. Driving by a billboard where you notice the advertisement for 3 seconds while paying attention to something else drastically less valuable than your favorite Youtuber giving a heartfelt endorsement of a relevant product. In turn, advertising with the Youtuber is often considerably more expensive.
What else matters
Knowing that we use impressions to calculate CPM, then it’s important to know what impressions are: Impressions = reach x frequency. That means that CPM doesn’t tell us whether we’re reaching 1000 people 1 time, or 100 people 10 times each.
CPM is generally used as a loose guiding tool and not alone as a single metric for decision making in advertising. Advertisers are best considering other metrics and qualitative factors to better understand how effective an ad is.
Have any real world examples you’d like my insight on? I’d be happy to answer any questions you may have and will happily create future articles that go into depth on the subjects you’re interested in. Let me know in the comments.
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