What is CPM and How Does It Impact Your Advertising Costs?
Cost per mille (CPM), or sometimes called cost per thousand (CPT), is a marketing metric that explains the price an advertiser pays for 1,000 views or impressions of a website advertisement. CPM determines the price for online ads.
Although the CPT acronym is literally “cost per thousand”, CPM comes from the Latin word mille meaning thousand.
Simply put, CPM indicates how much demand your campaigns generate. Monitoring this metric helps determine:
- The cost of serving impressions to gauge how many impressions you can serve within your budget
- How many people you can theoretically target
- And if you know your conversion rates or cost-per-acquisition, gauge the potential results.
Understanding CPM: Definition and Calculation
For CPM, an ad impression takes place each time someone views an advertisement. Digital marketers use CPM as a metric to understand how much they pay for 1,000 views of their ads and as a pricing model to show how much a digital publisher (like Google Ads that works on a CPM or cost-per-click basis) charges for ad space on its websites.
Here’s how to calculate CPM:
Divide the cost of your digital ads by total impressions and multiply by one thousand.
CPM = (cost ÷ impressions) × 1000
And here it is in an example:
CPM = ( $350 ad campaign cost ÷ 20,000 total impressions ) x 1,000
CPM = $17.5
CPM is generally delegated toward campaigns created to reach thousands of people, not a niche audience.
How CPM Affects Your Advertising Campaign’s Success
CPM is an important piece of the digital advertising spend pie. The CPM cost directly impacts your total advertising costs and ROAS, determining how to manage the advertising campaign budget.
If you have a low CPM, that means you’re paying less for each 1,000 views or impressions. And paying less on CPM means you can efficiently manage spend and increase your chances of a higher ROAS. Think of ROAS like ROI, except that you’re measuring demand, not costs and profitability.
Compare the following two campaign examples, both with a budget of $1,000:
Campaign #1: CPM of $10 = 100,000 impressions
Campaign #2: CPM of $5 = 200,000 impressions
At the same cost, campaign number two reaches twice the audience for twice the amount of potential engagements and conversions. If your ads are optimized and the audience targeting is dialed in, this significant reach can have a positive affect on your ROAS.
However, there are several factors that can drive up the total cost of CPM rates, including:
- Ad competition
- Audience targeting
- Ad relevance
- And seasonality
Understanding and tracking these components can help you develop ways to lower your CPM without sacrificing campaign quality and effectiveness. We’ll explore these factors in more detail in the following section.
Proven Strategies to Lower Your CPM in Online Advertising
1. Improve Ad Quality to Reduce CPM Costs
Advertising platforms like Google and Facebook use quality score and relevance to determine ad placement and cost. Poor quality ads = higher CPMs. High quality ads that match your target audience get better placement and lower CPMs.
To create ads that resonate with your audience, use clear, repeatable, and engaging copy coupled with quality images or visuals that create connections to your brand and address audience needs. Make them mobile-friendly.
2. Optimize and Refine Ad Targeting for Lower CPM
Although precisely targeting your audience can improve ad engagement, niching down too much can also drive up costs because you’re paying more for less reach. To balance it out, optimize targeting to lower CPM by:
- Refining audience segments with past campaign data and customer insights based on demographics, interests, and behaviors.
- Excluding previously converted audiences or those unlikely to convert.
- Using best-performing customer segments to create lookalike audiences that reach similar users.
- Remarketing to previously engaged users.
3. Choose the Right Bidding Strategy to Control CPM
There are two popular bidding models to control CPM:
- CPM Bidding: Clicked or not, the price you pay for every thousand impressions. CPM bidding can be great for top-of-funnel brand awareness campaigns.
- CPC (cost-per-click) Bidding: You pay when someone clicks your ad. This is more effective on bottom-of-funnel campaigns because you’re paying for actual engagement.
4. Use A/B Testing to Identify Cost-Effective Ad Variations
Consider A/B testing different elements of your ads to find profitable variations. Choose one ad element at a time to test on two different versions, split the budget equally, and allow the test to run for long enough time to gather sizable results. Analyze the results, paying special attention to CPM, click-thru-rate (CTR), and conversion rate. Use the winning ad.
5. Implement Frequency Capping to Prevent Ad Fatigue
Limit the amount of set time someone sees your ad to prevent ad burnout. Frequency can cause disengagement with your brand and raise the price of your CPM. And, by limiting impressions per user (say 2-3 per user per week), your budget is distributed across a larger audience.
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How to Measure and Optimize CPM for Maximum ROAS
Key Metrics to Monitor for Effective CPM Management
To gauge the effectiveness of your CPM strategy and calculate its impact on ROAS, you need to track the following metrics:
- Click-Through Rate (CTR): The % of people that click on an ad after viewing. High CTR = ad relevance.
- Conversion Rate: The % of users that complete a key event like a purchase after clicking an ad. A high conversion rate can justify a higher CPM if it leads to better ROAS.
- Cost Per Click (CPC): A lower CPC with a consistent or growing conversion rate means your CPM optimization efforts are working.
- Cost Per Acquisition (CPA): The average cost of acquiring a customer or conversion. Monitoring CPA and CPM helps ensure that lowering your CPM doesn’t come at the expense of conversion quality.
- Return on Ad Spend (ROAS): Divide the revenue generated by your ad spend. A higher ROAS signals that your CPM optimization work is positively impacting your bottom line.
Tools to Analyze and Track CPM Performance
To track CPM and campaign performance effectively, become familiar with how to use the following tools:
- Google Analytics 4: Utilize GA4 reports to measure and set up key conversion events, analyze traffic sources and campaign performance, and custom reporting.
- Facebook Ads Manager: Monitor CPM and CTR in the Performance tab or analyze performance by ad placement, audience, and other factors. Program custom conversions, too.
- Google Ads: Monitor CPM at the campaign and ad group level or dig into the Auction Insights report to compare your ads against competitors.
- LinkedIn Campaign Manager: Track CPM rates in the Performance tab or use the demographic report to study best-performing audience segments.
- Data Management Platforms (DMPs): DMPs, part of the programmatic advertising workflow to buy and sell ad space, store and organize audience data in one unified solution to improve targeting. They provide detailed audience segments, allowing you to discover new potential customers, and personalize ad experiences.
Using Data to Continuously Improve CPM and Campaign Success
Bolster your efforts with data. Here are some tips on how to analyze data trends and use insights to improve CPM rates and campaigns:
- Find patterns in CPM as they fluctuate throughout the day, week, or year and use them to adjust ad scheduling or budgeting.
- Search for connections between CPM and metrics like CTR, conversion rate, and ROAS to find a perfect middle ground where a lower CPM doesn’t negatively impact the other KPIs.
- Segment your CPM data to refine audience targeting and tailor ads to specific segments.
- Conduct frequent reviews of your CPM and campaign performance to find areas of opportunity.
- Test, test, and test some more until you’ve got the right target with the right bidding strategy.
Real-World Example of Successful CPM Reduction Strategies
Let’s look at how one B2C brands optimized their digital marketing campaigns for positive ROAS.
Anolon, a leader in cookware since 1984, wanted to re-engage historical customers who hadn’t purchased products in two years. After transitioning their online platform to Shopify 2.0, Anolon looked to Untitled DSP for enrichment and digital advertising services to improve their customer retargeting efforts.
Leveraging Untitled’s robust data set, which includes over 300 million people-based records, we enriched their historical customer data set by matching on Anolon’s email address and mailing address with additional demographics and advertising IDs.
The result: Anolon was able to execute precise, 1:1 targeting within the Untitled DSP, reaching customers they hadn’t connected with in years, achieving a 9X ROAS on a modest budget of $5,000.
Using data enrichment and better targeted customer segments, Anolon reawakened new life into dormant customer relationships to boost brand awareness and drive customer retention.
Lower Media Buying Costs With a Demand-Side Platform
Lowering CPM while maximizing ROAS requires a strategic approach combining ad quality improvement, precise targeting, and data-driven optimization. By implementing these strategies across various platforms and ad formats, you can significantly enhance your advertising efficiency.
To take your campaigns to the next level, consider leveraging the Untitled DSP for advanced targeting and real-time bidding capabilities. Book a demo with Untitled and see how you can purchase wholesale media rates that stretch your marketing dollars further than ever before.
