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What Is CPM? Definition and Guide on How to Calculate It
Last updated: Mar 31, 2024
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What is CPM (Cost Per Mille)?
Cost Per Mille (CPM) is one of the metrics commonly used to assess how successful online advertising is.
The term "Mille" comes from Latin and means a thousand. Therefore, this metric is used to measure the cost for every 1,000 impressions.
When engaging in online advertising and using this metric, advertisers incur costs for every thousand impressions, regardless of the effectiveness of the ad performance. As a result, businesses aiming to boost their brand awareness often maximize this metric.
Understanding how to calculate CPM can be highly beneficial, especially as a business practitioner. If you're curious and want to learn how to calculate CPM, read the article below.
Impression in Digital Advertising
In the context of online advertising, an impression refers to the number of times an ad is displayed on the screen of the target user.
In other words, each time an ad appears on a web page used by a user, that appearance is counted as an impression.
Although the impression metric cannot provide accurate information about user interaction, it remains effective in assessing how successful a digital campaign is in reaching the target audience.
How CPM Works
Typically, CPM (Cost Per Mille) sets the cost for every 1,000 ad impressions. In this model, advertisers and publishers agree on the cost that the advertiser will pay each time their ad is shown a thousand times.
After the agreed-upon ad cost is set, the ad is then placed on various platforms, such as websites, social media, blogs, and more. When users access pages that display the ad, the ad impressions are counted.
For example, if the cost per 1,000 impressions is set at Rp200,000, and your ad receives 5,000 impressions, you would need to pay Rp1,000,000.
The Differences Between CPM and CPC
CPM stands for Cost Per Mille, while CPC stands for Cost Per Click. Both are metrics commonly used to measure the success of online advertising. So, what are the differences between the two?
Criteria | CPM | CPC |
| Payment method | Payment for every 1,000 ad impressions. | Payment for each click on the ad. |
| Main objective | Brand awareness and reach. | Direct actions leading to conversion. |
| Advantages | Ideal for maximizing brand exposure. | Suitable for maximizing conversions. |
| Risk | Higher risk if there is insufficient user interaction. | Lower risk, as payment is based on specific actions. |
Why is CPM Important for Businesses?
This advertising metric is suitable for measuring the success of ads, especially in increasing brand awareness.
Why is it important? With this method, your ads can stand out on several websites with high traffic.
Moreover, this metric also enables companies to compare the effectiveness of ads across various platforms and use this data to maximize future advertising efforts.
CPM Functions
Cost Per Mille is a metric that can help businesses maximize their digital campaign or online ads strategies. It can help businesses to:
1. Maximize Brand Awareness
This metric can help businesses maximize brand awareness. The payment method for every 1,000 impressions allows businesses to gain broader exposure across various platforms.
2. Increasing Reach and Exposure
Cost Per Mille is an appropriate measurement method to review how effective a business's ad reach is.
In this model, advertisers only need to pay based on the number of views, regardless of whether users click on the ad or not. Therefore, it is well-suited for campaigns aiming to reach as many potential audiences as possible.
3. More Specific Budget Planning
Another benefit is you can be more flexible in planning your advertising budget because you already know the exact cost to be paid for every 1,000 impressions.
3. Targeting Audiences Based on Demographic Analysis
Although it does not focus on user actions, advertisers can still use targeting strategies and demographic analysis to increase ad relevance.
For instance, by understanding the characteristics of the target audience, you can choose the most suitable targeting parameters. This is aimed at displaying ads to groups that are most likely interested.
4. Targeting Audiences Based on Demographic Analysis
Although this metric does not focus on user actions, advertisers can still use targeting strategies and demographic analysis to enhance the relevance of ads.
For example, by understanding the characteristics of the target audience, you can choose the most suitable targeting parameters. This is aimed at displaying ads to groups that are most likely interested.
In addition to the mentioned advantages, the CPM method also has drawbacks, especially in accurately calculating impression rates.
The credibility of this method is further questioned with the presence of bots that can be set to visit websites and increase the number of impressions.
How to Calculate CPM (Cost Per Mille)
If your business aims to use CPM as the objective of advertising success, you can use the formula below.
Note: Impressions are the number of ad views seen by the audience. If the audience sees the ad 5 times, then the impressions are also five times.
Here is an example of how to calculate it:
CPM = (20,000,000 : 500,000) x 1000
CPM = Rp40,000,- (Indonesian Rupiah)
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