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CPM Advertising Costs, Examples and Strategy

CPM advertising

CPM advertising is a pricing model based on cost per thousand ad impressions.

It places a consistent payment rate on the number of times the ad is distributed, whether online or through traditional media.

But the rate does not depend on whether the campaign produces clicks, leads or sales.

In traditional media, a CPM advertising campaign tracks the distribution of the ad to print readers (newspapers and magazines), travelers (outdoor billboards) and broadcast viewers or listeners (radio, network TV, cable TV).

CPM advertising in traditional media tracks the distribution of the ad to an estimated audience. In online media, it tracks the verifiable distribution and consumption of the ad.

Qualitative research, which relies on question and answer surveys of a limited number of respondents, will estimate the size of a radio station or TV station audience in total and during each time segment. The station will use that research to set CPM rates for its advertising.

Traditional CPM Example

A local TV station receives survey results showing that it has an estimated audience of 200,000 viewers.

The station will sell a campaign to an advertiser that reaches 20,000 of those viewers with a commercial that airs during certain time periods. It charges the advertiser $500 for the ad campaign. The CPM is $25.

The CPM formula follows: $500 = (20,000 / 1,000) * $25.

It is another way of saying that the station charges $25 for every block of 1,000 impressions. Because the advertiser bought 20 blocks, the cost is the $25 base rate times 20 blocks or $500.

Did exactly 20,000 viewers see that commercial? The answer is that it’s highly unlikely.

The reason why is that the distribution of the ad is based on research estimating the number of viewers during the time periods the advertiser purchased. The actual number of viewers may be higher or lower.

Online CPM Example

The same numbers can be useful in calculating an online CPM example.

A Web site has 200,000 visitors every month based on verifiable third-party audience tracking.

An advertiser would like to reach 20,000 of those visitors over the course of a month or 10 percent of the total visitors.

The publisher sets up a campaign in which each visitor sees the ad two times. In this case, the CPM is $10.

Because 20,000 visitors will each see the ad twice, the total number of ad impressions is 40,000.

Because the CPM is $10, the total cost is $400 or the $10 base rate for 40 blocks of 1,000 impressions apiece.

On the surface, the online campaign sounds more valuable because it delivers more impressions to the same audience size.

While the pricing model is the same, each distribution channel has different advantages and disadvantages that impact the actual value of the CPMs.

Advantages of Online CPM Pricing

One reason for the popularity of online CPM advertising is that the viewership is verifiable and quantifiable. The viewership also is often more precisely targetable based on demographic and geographic data.

A site using ad serving software can track the display on an ad on a page and report that impression. The best ad serving software provides certified, third-party reports for the sake of credibility.

Software also can control the number of times the ad appears to a unique site visitor so that no one visitor will see the same ad too many times.

In traditional media, three impressions is a common standard, while some research in online advertising has shown that five to six impressions is ideal.

The downside to online CPM advertising is that many sites have more than one ad per page that compete for the visitor’s attention. With traditional broadcasting, that ad has no competition. Viewers see only one dad. Listeners heard only one. However, newspapers often have more than one ad per page.

Proponents of online advertising might point out that it is much more of a captive audience than print or broadcast.

A TV viewer might leave the room during a commercial. A newspaper reader might not even open the page with the ad.

An Internet surfer often sees the ad because he or she just clicked on a link to a page that contains the ad. They are less likely to leave their computer at the moment they click on the link than a TV viewer during five minutes of commercials.

CPM Cost Factors

Although the CPM pricing model began in traditional advertising, it has become the second most popular pricing model for Internet advertising after CPC or cost per click in part because of its efficiency, verifiable distribution, the ability to target and other factors.

Nielsen Research has reported in recent years that the cost of CPM advertising on TV has hovered around $25 per thousand impressions. Some reports put online video advertising rates at the same level. Various sources report radio rates as low as $4 and newspapers as high as $20 to $30. Other factors impacting price include competition, the size of the ad in print and the length of the commercial on broadcast.

The Internet Advertising Bureau reported that the average CPM for 100 sites in 2013 was $11.70. CPM rates vary greatly by category, i.e., health, travel and finance.

Factors that increase the average cost include geo targeting, segment targeting and the type of display ad including:

  • Static image
  • Flash / animated
  • Video
  • Expandable
  • Belt
  • Marquee
  • Pushdown

CPM Strategy

Salespeople representing all forms of media compete for advertisers’ marketing budgets.

For large advertisers, budgets are split up among multiple channels of distribution, such as broadcast, print and online.

Each channel receives a portion based on its ability to deliver the most valuable audience with the fewest possible dollars. The following strategy considers audiences, costs, results and adjustments:

  1. Get as much information as possible about the target audiences for each available channel. Can they be targeted by zip code, gender or buying interests?
  2. Compare the CPMs among the various channels and favor the lowest CPM to minimize the budget impact.
  3. Set a moderately short campaign schedule to test the effectiveness of each channel.
  4. Establish a value on the results based on cost per acquisition, cost per lead, cost per transaction or a related metric. Adjust each campaign accordingly.

It is in the best interest of the advertiser to look at comparative CPM rates for all promotional channels.

But using a metric such as cost per transaction will make it clear which channel produces the most valuable results.

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