In the chaotic world of digital advertising, brands are competing for consumers’ attention across social media, search engines, and websites. Choosing the right advertising pricing model, along with an effective messaging strategy, can help you break through the noise.

One of the most popular tools to achieve this goal is CPM marketing. In this format, advertisers pay for impressions, rather than clicks or conversions. At first, CPM marketing may seem like a gamble, since you have to pay up front with no guaranteed results. However, just as in life, first impressions are important, so too is first impressions in marketing.

In this article, we’ll cover how CPM marketing works, how rates are calculated, and why it’s better suited to your marketing goals than other pricing models.

What is CPM?

CPM is a digital advertising pricing model in which advertisers pay each time their ad is displayed or exposed. CPM stands for "Cost Per Thousand Impressions," meaning "cost per thousand impressions," and comes from the Latin word mille , meaning "thousand."

Advantages of CPM

CPM marketing offers several advantages that make it an effective choice for many digital advertising goals. Some of the key benefits of CPM advertising campaigns include:

Increase brand awareness

CPM campaigns on ad networks like the Google Display Network allow businesses to build brand awareness. The CPM pricing model offers advertisers premium ad placement and wide reach across web pages. This allows them to build brand awareness and recognition by showing their ads multiple times.

When leveraged as part of a larger digital marketing effort, CPM advertising can go beyond simple awareness to actual sales.

Cost-effective customer acquisition

CPM advertising is a cost-effective way to acquire new leads and customers compared to some other digital marketing pricing models. CPM campaigns allow you to customize your target CPM rate based on the customer acquisition cost and the value of the conversion. While clicks are often unpredictable, the CPM model is predictable because you only pay for impressions.

Effective Retargeting

PM ads may not directly drive conversions, but they can generate leads and sales by enabling retargeting. CPM campaigns repeatedly expose your brand and ads to high-intent audiences across a variety of ad formats and placements.

When combined with email, social media, and search advertising, marketing campaigns using CPM can drive consumers to the conversion stage. As CPM strategies increase awareness and familiarity with your brand, prospects are more likely to engage and convert when they see your message on other channels.

How to calculate CPM

The formula to calculate CPM is simple:

CPM = (Total campaign cost / Total impressions) x 1,000

To use the CPM formula, you need two pieces of information:

• The total cost of an advertising campaign, or the amount you pay to run your ads.
• Total number of impressions the campaign will generate (or has generated)

Once you know these two numbers, you can divide the total cost by the total number of impressions. This will give you the cost per impression. CPM is cost per thousand impressions, so multiply the result by 1,000 to get CPM.

CPM Calculation Example

For example, let's say a clothing retailer runs an online advertising campaign with the following details:

• Total campaign cost: $5,000
• Total impressions: 2,000,000

Here's how clothing retailers calculate CPM:

CPM = ($5,000 / 2,000,000) x 1,000

CPM = $2.50

So, the CPM for the clothing retailer's ad campaign is $2.50, which means they pay $2.50 for every 1,000 impressions their ad receives.

CPM vs. CPC vs. CPA: What’s the Difference?

Advertisers can choose from a variety of pricing models to calculate their advertising costs, each with its own unique cost calculation method. The three most common models are Cost Per Mille (CPM), Cost Per Click (CPC), and Cost Per Action (CPA). Understanding the differences between these models is crucial for marketers looking to optimize their advertising spend and return on ad spend (ROAS).

Here's what each pricing model means:

CPM (cost per mille)

CPM stands for Cost Per Mille (CPM), which means the advertiser pays per 1,000 impressions of their ad. Each time an ad is shown to a user, it is recorded as an impression, and you are charged regardless of whether the user clicks on the ad or converts.

Because CPM focuses on how often an ad is shown rather than how many interactions there are with the ad, it's best suited for campaigns designed to build brand awareness.

CPC (cost per click)

CPC stands for cost per click, which means that advertisers pay each time someone clicks on their ad. The cost is charged regardless of what happens after the click. This model is mainly focused on driving traffic to a website or landing page.

CPC is often used in campaigns that want to drive immediate actions, such as visiting a website or landing page, rather than simply viewing an ad.

CPC = Total campaign cost / Total number of clicks

CPA (cost per action)

CPA stands for Cost Per Action, which means the advertiser only pays when a user clicks on an ad and then takes a specific action. This action could be a sale, sign-up, download, or other predefined conversion event.

CPA is a performance-based model, and is primarily used in affiliate marketing. In affiliate marketing, content creators earn a commission every time someone buys a product through their affiliate link. Advertisers prefer the CPA model to ensure that their advertising spend is directly tied to a specific conversion goal.

CPA = Total campaign cost / Total conversions

Each model is suitable for different advertising goals. Choosing between CPM, CPC, and CPA depends on what the advertiser wants to achieve with their campaign.

CPM Marketing FAQs