Understanding Cost Per Thousand in Digital Marketing
In today’s digital age, advertising has shifted from traditional advertising methods like billboards, TV commercials, and print ads to digital advertising such as social media marketing, search engine advertising, and display ads. Cost per thousand (CPM) is a common term used in digital marketing. A metric that refers to the amount of money a brand or marketer would pay for 1,000 views of their online ad. This blog post aims to provide a comprehensive guide to understanding cost per thousand and how it affects digital marketing.
What is Cost Per Thousand (CPM)?
Cost per thousand is an advertising metric used to calculate the cost of an online ad that has been viewed one thousand times. The term CPM comes from the Roman numeral for 1,000, “M”. The formula for CPM is simple. It is calculated by dividing the cost of the ad by the number of impressions and then multiplying the result by 1,000.
How is CPM Calculated?
Marketers use CPM to decide how much they should bid for a keyword or keyword phrase and how effective their advertising campaign is. For example, a brand wants to bid on the keyword “digital marketing,” and the cost per click (CPC) is \$0.50, while the CPM is \$50. If a user clicks on the ad, the brand will pay $0.50, but if 1,000 users view the ad, the brand will pay $50. The calculation is the same for all other ad formats such as display, video, native, and social media advertising.
Advantages of Using CPM
Using CPM is beneficial for digital marketers in several ways. Firstly, it allows them to accurately measure their ad campaign’s success based on the number of impressions and engagements generated from the ad. Secondly, it helps to determine if the advertising campaign is cost-effective. Brands can compare the CPM of different ad types to identify the best-performing ad. Lastly, CPM enables brands to decide which ad format is most effective for their target audience.
Disadvantages of CPM
While CPM has its advantages, it also has some disadvantages. One is that it only measures the number of impressions and not the number of clicks or conversions generated from the ad. Secondly, there is no assurance that views or impressions will translate into clicks or lead generation. Lastly, higher CPM rates may indicate high competition for ad placement, which may drive up advertising costs for marketers and decrease ad visibility.
Cost per thousand is an essential metric for digital marketers in measuring the success of their online advertising campaigns. Although CPM has its advantages, marketers should also be aware of its disadvantages when using this metric to optimize their digital advertising campaigns. By developing a thorough understanding of CPM and how it is calculated, marketers can create more effective ad campaigns and achieve their desired goals.