What Is CPM?
Written by Ben Morrisroe
23 Sep, 2020
What is CPM?
CPM is an acronym for cost per mille, meaning the cost per thousand impressions (or how many times it is seen). It refers to how much it costs to have an ad published and seen a thousand times on a website and is used to monitor ad performance.
The total cost paid in a cpm deal is calculated by multiplying the Total Impressions by the CPM rate & then dividing it by one thousand. For example, one million impressions at cpm equal ,000 in gross revenue.
One thing to mention is that adsense reports this as RPM. This benefits the publishers because it means that if your website has high traffic, selling on a cpm model could be an easy way of monetizing your content. If you’re confused about the difference between cpm and ecpm, check out our guide to eCPM. To learn more about the other most common advertiser and publisher metrics, check out our guide to CPM CPC CPA and CTR.
What is a good CPM?
As with most digital marketing metrics, you can’t determine if a CPM is good or bad based only on a single value. Analyzing past performance data, benchmarking results against averages for your market and evaluating the impact of CPMs on your ROI can help you determine whether a CPM is a good or bad result.
A lower CPM is not always a positive indicator for an advertiser, as it may be an indication of poor quality traffic. For publishers, having a high CPM doesn’t translate with higher earnings, as some ad inventory may not be sold.
You need to put that data in context in order to be able to accurately estimate whether the CPM is good or bad. Analyzing past performance data, benchmarking results against averages for your market and evaluating the impact of CPMs on your ROI can help you determine whether a CPM is a good or bad result.
This year, the pandemic has seen falling CPMs across the display adverting market in the US as a whole since April, according to eMarketer’s recent report. Simply put, the lower demand for ads combined with consumers having more time online increasing the supply of impressions has led to a drop in CPMs. Find out more about how CPMs have been affected during Covid-19 in our Covid-19 Q1 and Q2 updates this year.
How does CPM work?
CPM is a metric used both by publishers and advertisers. A publisher will determine their target CPM for selling ad space, which may change if the advertiser is targeting a specific, premium audience, or if it’s buying a high volume of ad impressions. CPM can be calculated by ad, by ad location or by campaign.
CPM is rarely used on its own. Usually, it’s used together with other, more advanced metrics, but CPM provides context and key information to support strategic decisions to improve the publisher’s revenue.
Factors affecting CPM
There are several factors that can influence the value of CPM.
- Geography: Average CPM will be influenced by how developed the online industry is in a given country, and the spending power of the inhabitants of that country. CPMs in the US, Europe, Australia or Japan will be, on average, higher than in Egypt or Brazil.
- Data usage: Targeted ads using available data to build a user profile will command higher CPM prices than just buying the ad space without segmenting the target audience.
- Device: Ads served on mobile devices have a lower CPM than in desktop, due to screen size limitations, lower CTR and conversion rate.
- Website topic and quality: Niche publishers are able to have a higher CPM as they have a more segmented and homogeneous audience than a generic news site. As more businesses factor brand safety when evaluating ad placements, higher quality websites are able to command higher prices as well.
- Ad size: On average, larger ad formats have a higher CPM, as they are more prominent and more likely to entice action from the user. But the most common ad sizes, even though not the largest, also generate higher CPMs.
- Ad viewability: The definition of viewability depends on the ad format, but for display ads, Google, IAB and MRC define viewability as having at least 50% of the ad on screen for a minimum of 1 second. A publisher with a low viewability score will see their CPM rates drop drastically.
- Past performance: Advertisers value traffic quality and are keen to pay higher CPMs for placement in sites which drive conversions and a higher ROI.
- Number of ad units on page: A higher number of ad units on the page will drive down the CPM rates. A bigger supply will result in lower bids for those ad units.
- Seasonality: Traffic has some seasonality within different industries, leading to changes in CPM rates. Summer can see a decrease in spending, particularly in Europe as many people take time off work for holidays.
Why do CPMs change throughout the year?
The cost per thousand impressions fluctuates throughout the year. This could be for obvious cases such as coming up to Christmas or Black Friday. You can expect an increase as advertisers start upping their spend to catch all the purchase-hungry consumers. But, apart from these events, what makes CPMs move up and down throughout the year and what can you do to predict (and maybe even mitigate) these changes?
When advertisers increase their ad spend coming up to major events, we see a corresponding increase in CPMs. But we also see regular drops and increases in CPMs throughout the year across all of our publishers which can be harder to pin on a corresponding event.
January CPM Blues
Based on our data, publishers will find a major dip in cost per thousand impressions in the month of January – the “January blues”. This is because consumer spending and traffic is down post-Christmas. Agencies and advertisers will also be busy planning budget spend and making deals for the rest of the year so spending is reduced while those campaigns are waiting to go live. CPMs drop from their peak in Christmas to 51% of what they were. Our Fuse dashboard showing the change in CPMs.
CPM Quarterly Cyclical Patterns
Apart from the January blues, a cyclical pattern of rises and falls in cost per thousand impressions can be seen within the data. Dips at the start of a quarter and rises towards the end are due to the way advertisers spend their budget.
At the start of the quarter, advertisers are making spending plans and purchases so less activity is seen. At the end of the quarter, these advertisers are looking to spend the rest of their budget before the quarter end, corresponding to an increase in your CPMs due to increased competition. CPMs tend to drop around 20% at the beginning of each quarter.
June can also see spikes in spending as many (Australian) companies have their fiscal year coming to an end. Any money unspent will be factored into future budgets and may be taken off the team next year-round.
How do large events impact CPM? The COVID-19 case
In 2020, the world faced a global pandemic caused by a coronavirus which brought to a halt most economic activity in countries like Italy, Spain, France, UK or the US. And, of course, this unexpected situation had a deep impact on online advertising as well. The pandemic has seen falling CPMs across the display advertising market in the US as a whole since April, according to eMarketer’s recent report.
Why is CPM a key metric?
CPM continues to be an important metric for publishers and advertisers, even though analysts and strategists have now a wealth of data and metrics available to measure user engagement and ad effectiveness.
Part of the reason is that it’s an industry standard that’s been around since the dawn of online advertising. But there are also some areas in which CPM is a very useful metric for advertisers:
- Brand awareness: For advertisers with a focus on brand visibility, then the CPM metric will let them know approximately how many people they’re reaching online with their budget.
- Campaign performance: Combined with other metrics such as CTR and conversion rate, it’s a key performance indicator that allows advertisers to evaluate their investment on your website.
What is a CPM campaign?
An online ad campaign based on Cost Per Mille (CPM) is when the advertiser reaches an arrangement with the publishers, via automated bidding or direct negotiation, to pay a determined amount per thousand ad impressions.
This kind of campaign is one of the most profitable for publishers, as they will be compensated for each ad served, independently of the user action. Another advantage for publishers is that it’s a predictable revenue, and they have full visibility to the value delivered to the advertiser. In this case, ad impressions.
But a CPM advertising campaign might not be the most optimal type of campaign from a revenue standpoint. If there’s a good match between an advertiser and the publisher’s audience, other campaign modes, like cost per action, might generate higher revenue.
How to optimize CPM
Prepare for seasonal variations
It’s important to know when to expect seasonal variations in CPM rates so you can better benchmark your performance and forecast future revenue. Look at your past data and see where you tend to see dips in your CPM. Think about your industry from a buyer’s perspective. If you run a dating website then February will be a big month for you as advertisers will heavily increase spending around Valentine’s day. If you run a personal finance website or health and fitness blog, then the January Blues may be your pot of gold as consumers rush to your websites to start their New Year’s resolutions richer and healthier.
Knowing when to expect these fluctuations will prevent you from getting caught off guard when a drop comes rolling along and help you to plan cash flow around these times. We would suggest not to make any dramatic changes during a slump and use the time to work on upcoming content to take advantage when advertisers are buying big. If you need to do any testing on your site, the first month of the quarter is a good time.
The last month of the quarter, Black Friday, and Christmas periods, are not a good time for a site redesign to go live or to run another testing that may affect the site. Our account managers at Publift are experts in anticipating trends and build these into your ad management so you don’t have to worry about it.
Place your inventory on a supply side platform
In order to try to generate higher Google CPMs, you can place inventory on a supply-side platform to open your ad inventory to more advertisers. If you have a niche audience or a high-quality website, more competition for your ads will increase the CPMs.
Other actions you can take is to test and experiment with ad formats and ad placements to increase ad viewability.
Another path to improve revenue is to focus on fill rate. Even with lower CPMs, you can increase overall earnings by improving the fill rate of your ad placements.
CPM is a health indicator of your revenue streams
Display advertising is the primary revenue source for the vast majority of websites. It’s easy to deploy and to scale, and it’s still in high demand by advertisers. What is CPM? – it is a basic but key metric to measure revenue for every thousand impressions.
Monitoring CPM rates will help you assess the performance of your ad inventory for every thousand impressions and take actions to optimise your revenue streams. To do that, it’s important to understand what influences CPM rates and the seasonality of the CPM changes.
So what is CPM good for if you’re a publisher or website owner? Each publisher will have to take into account different factors to determine what is a good CPM rate in their context, but it’s important to note that higher CPMs while being a positive indicator, need to be contrasted with other data, like the fill rate of your ad placements.
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