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What is CPM in Digital Marketing & Why It Matters in 2024

what is CPM in digital marketing

CPM, short for Cost Per Mille, might sound like a foreign language to you. 

But in a few moments, you’ll know this digital marketing acronym like the back of your hand. 

So, what is CPM in digital marketing?

Think of CPM as the measure of your marketing reach

It helps advertisers calculate how much it costs to reach 1,000 potential customers (people) — with one caveat that we’ll explore later. 

So, in summary, it’s the cost per 1,000 impressions (a.k.a. CPM). Kind of like how per cent means per 100.

How to calculate CPM

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Let’s say a website is asking for $10 CPM to show your ad.

Every time your ad shows up 1,000 times to visitors, you need to pay $10.

Pretty simple. But it’s far from a perfect bidding strategy.

Because your ad could be collecting more taps than a trending tweet, or it might be as ignored as a no-name brand at a discount store. 

It doesn’t matter. You still get charged the same amount.

CPM’s role is to get your face in the crowd, not necessarily to turn heads (that’s your job in creating great ads).

But here’s one important thing to remember… 

Don’t mistake page views for impressions

There’s a distinct difference. 

Imagine you’re in a park. 

Impressions are like people who pass by a notice board where you’ve left a flyer. 

They glance at it, or maybe they don’t, but either way, they’re considered ‘impressions’ because they had a chance to see your flyer.

On the other hand, page views are like the people who not only walk by the notice board but also take a moment to pick up the flyer and read it. 

They’ve engaged with the content on a deeper level.

Just like when someone actually visits your web page from the ad.

Using Cost Per Mille in digital marketing campaigns

A CPM campaign is often favoured for its wide reach and brand exposure capabilities. 

But how does a CPM campaign function, and what can it offer to your digital marketing strategy

Let’s explore.

The strengths of CPM campaigns

When done right, CPM campaigns can give your brand a big boost online. 

It’s like turning on a spotlight that helps your brand stand out in the crowd. 

Here’s a closer look at why you’d use this campaign type:

#1 — Effective for ‘Top-of-the-Funnel’ marketing

Source: CleverTap

If your goal is to boost visibility and brand awareness, CPM campaigns are your go-to strategy. 

You have the potential to reach a vast audience in a short amount of time. 

This is particularly valuable when launching new products and entering new markets.

But it’s also very popular among well-established companies that want to keep their brand top-of-mind, like the FMCG brand Coca-Cola.

#2 — Predictable advertising costs

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Source: Popupsmart

CPM campaigns offer more consistent and predictable costs.

Unlike other models where costs might fluctuate based on user behaviour or marketplace conditions (such as CPC). 

You know exactly how much you’re spending for every thousand impressions. 

The result? It makes expenses more predictable; minimises risk. 

This is crucial for businesses working within a strict budget and aren’t looking for guaranteed sales for their ads.

#3 — Simplified bidding process

With CPM campaigns, you don’t need to worry about intricate keyword bidding strategies as you do with CPC models. 

This simplifies your process and can save you time and energy instead of trying to plan detailed keyword strategies.

This allows you to focus more on crafting compelling ad creatives and refining your target audiences (for ToFu and MoFu audiences, usually).

The drawbacks of CPM marketing

As with any marketing strategy, CPM bidding comes with certain disadvantages. 

And understanding these drawbacks is essential if you want to invest your marketing dollars in the right way. 

#1 — Sales is not the focus

One of the most significant drawbacks of CPM campaigns is that they charge for impressions, not for conversions (sales). 

An ‘impression’ means your ad was displayed, but it doesn’t necessarily mean the person purchased your product (which helps when determining your CPA to drive more sales). 

Think about it. 

You’re paying for massive visibility, not visibility, not guaranteed sales.

#2 — There are ad wastage issues

Ad wastage is a big concern in CPM campaigns. 

An ad is considered ‘viewed’ if it appears on someone’s screen, but that doesn’t mean the user actually saw it or noticed it on the page. 

They might have quickly scrolled past it, which many of us do.

In other words, some of your paid impressions might not be meaningful, leading to wasted advertising spend.

#3 — There’s a risk of inflated and false metrics

If not shown to the right people, a CPM campaign can result in many wasted impressions.

For example, if your ad is displayed to people who aren’t interested in your product or service, it gives you a false sense of your true engagement rates.

So, the cost-effectiveness of your campaign diminishes, and you start to think that your ads don’t work for your intended audience.

However, despite these drawbacks, there are strategies to mitigate them.

Optimising CPM campaigns

#1 — Target the right audience

For a CPM campaign to be effective, it’s essential to target the right audience

You want your ad to be displayed to people who are likely to be interested in what you’re offering.

That also means targeting them when they’re in specific stages in your funnel (in this case, CPM ads are ideal for ToFu and MoFu audiences).

Effective targeting will increase the likelihood of ad engagement and conversions.

#2 — Craft compelling creative and copy

Since CPM is all about impressions, the ad’s design and message should be engaging, compelling and memorable. 

Your ads should stand out and convey your message clearly; without trying to just impress people (offering silly ways to turn heads with no desired effect).

Think about how you can make your viewers stop and take action.

#3 — Monitor key metrics

Despite not directly paying for clicks, monitoring engagement metrics is crucial in a CPM campaign. 

Metrics such as Click-Through Rate (CTR), bounce rate, and conversion rate are important. 

Those metrics tell you how well your ads are performing.

Understanding Click-Through Rate (CTR) in CPM campaigns

Before we delve into why CTR is so important, let’s first define what it is.

CTR is the percentage of people who click on your ad after seeing it. 

To calculate this, you divide the number of clicks your ad receives by the number of impressions (how many times your ad was shown) and then multiply the result by 100.

For example, if your ad was shown 1,000 times and it was clicked on 50 times, your CTR would be 5% (50 ÷ 1,000 x 100 = 5%).

Source: Kargo

The importance of CTR in CPM campaigns

Now, why is this percentage so significant? Here are a few reasons:

#1 — It helps measure engagement

The essence of digital marketing is to generate interest and engagement in your product or service (leading to sales). 

A high CTR means people aren’t just seeing your ads — they’re actually interested enough to click on them and learn more. 

It directly measures your audience’s response to your ad content, helping you understand what works and what doesn’t.

#2 — It affects ad rank and cost

For many online advertising platforms like Google Ads, CTR is a crucial component in determining your ad rank (Quality Scores) and the cost per click (CPC). 

A higher CTR often leads to a better ad rank and a lower cost per click via platform discounts.

As a result, it makes your advertising efforts more cost-effective.

#3 — It impacts your ROI

At the end of the day, a high CTR can lead to higher conversion rates.

It shows that your ad is not just reaching people but also resonating with them. 

If these clicks lead to conversions (like making a purchase, filling out a form, etc.), then your return on investment (ROI) improves. 

CPM vs other types of bidding strategies: which is right for you?

Choosing the right bidding strategy for your digital advertising campaign is a critical decision. 

The best fit depends on your situation and what you’re looking for.

Your campaign goals, budget, target audience, and the nature of your product are some factors to consider.

But arguably, the biggest factor is knowing where your target audience is on their journey.

Let’s explore some common ad pricing models and see how they stack up against CPM.

Cost Per Click (CPC)

CPC is a model where advertisers pay each time someone clicks on their ad. 

If your main goal is to increase website traffic or conversions rather than simply boost brand visibility, CPC might be a better fit than CPM.

Cost Per Acquisition (CPA)

Cost Per Acquisition, or CPA, is like paying for results. 

In this model, you pay when a person does something specific, like signing up for your newsletter or buying something from your website.

This method is usually great if your campaign has a clear goal, like getting more sign-ups or sales.

But keep in mind this model often requires a higher budget.

Why? Publishers take on more risk by only charging for successful conversions.

Cost Per View (CPV)

Cost Per View, or CPV, is when you pay every time someone watches your video ad. 

So, if you’re creating a video ad and want as many people as possible to see it, choosing CPV is the way to go.

So, how do you decide which model is right for you? 

Consider your primary campaign goals:

  • If you’re looking to increase brand awareness and visibility, CPM might be your best bet.
  • If you want to drive specific user actions or conversions, CPC or CPA could be more effective.
  • If you’re launching a video ad campaign aimed at maximising views, consider CPV.

Remember, these models aren’t mutually exclusive and can often be used in combination. 

For example, you could use CPM to boost brand awareness and then employ CPC or CPA strategies to drive conversions for a more holistic approach.

The key is to understand your marketing objectives.

And then, choose the model (or combination of models) that aligns best with those goals.

It’s also important to remember that success in digital advertising doesn’t solely depend on the bidding strategy you choose. 

There are a lot of factors that can affect your success:

  • The quality of your ad creatives
  • Your offer and message
  • The relevance of your audience targeting
  • The overall user experience you provide

It’s time to use your newfound understanding of CPM in digital marketing

And there you have it. 

You now know what it means, why it’s important, and how to use it to your advantage in your marketing strategies.

No doubt, the intricacies of CPM might seem overwhelming at first, and yes, the pitfalls are real. 

But remember, no one ever said marketing was a walk in the park. 

At the end of the day, digital marketing is a dynamic and evolving field. 

So, keep learning, stay adaptable, and don’t be afraid to experiment with different strategies

josiah-roche-marketing

Josiah is a multi-award-winning digital marketing consultant and former journalist for the Australia Times. He now helps 6-7-figure brands as a Fractional CMO to generate predictable leads and sales growth.​

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