CPM Advertising - Advice for the Savvy Business Owner When Purchasing


When purchasing online advertising, one of the terms you will hear most frequently in the industry is CPM, also known as "Cost Per Mil" or "Cost per Thousand" advertising. What does this mean? It means that you are paying a certain rate for a 1000 impressions, or the number of times an internet user (in the case of online advertising) sees your ad.

Example -- A publisher (the site you are going to advertise on) might ask that you pay an $8 CPM, meaning that you are going to pay $8 for every 1000 times your ad is served to a user. So if you buy 1,000,000 impressions at an $8 CPM, you are paying $8,000. The easy way to calculate this is to cut the last 3 zeroes, assuming the impression number is 1,000 or more impressions, and multiply that times the price. So, 1,000,000/1000 = 1,000 X $8 = $8,000.

You could also do this in reverse -- $8,000 worth of inventory at a $2 CPM is 8,000/2 = 4,000 X 1,000 = 4,000,000 impressions. This calculation is helpful in the case where you are not getting a fixed rate per thousand impressions, in the case where you are figuring out an effective CPM, or effective Cost-per-thousand. Sometimes you might pay a flat rate for an entire day's worth of impressions on a site, and the terms are that you are going to get impressions in an expected range, for example, 1,000,000 to 2,000,000 impressions, but nothing exact. So if you pay $4000 for 1,500,000 impressions, your effective CPM is $4,000/(1,500,000 X 0.001), or a $2.67 CPM.

Lots of factors determine price in the case of CPM -- the site audience or traffic to your ad, for instance, can determine whether the ad is even applicable to them, or is misplaced (e.g. a tampon ad on a Men's Issues site). Additionally, there is a term from the print advertising industry that crossed over to online advertising called "Above the fold," -- in the newspaper industry, it referred to the ads that would be visible when a newspaper was folded horizontally, and these ads were worth more. In online advertising, this refers to the part of the screen that is immediately visible on most standard screen resolutions when the page immediately loads. The higher the ad, the more valuable it is, and more clicks can be expected.

And that brings us to the final goal of your ad -- what are you expecting? Some ads are placed for branding, meaning that you don't care as much about someone clicking on the ad vs. just seeing your professional logo design name constantly to the point that you cannot forget it. On the other hand, some ads are expected to drive ROI (return on investment), and the goal is ultimately to drive users to a landing page, the page that they would click through to and make a purchase or other action, like a sign-up.

What works is highly variable, but you need to have your expectations set ahead of time, and make your ad purchases accordingly. Know now that in most cases, online ads are far more effective for branding than ROI (though text ads are a different story, and can be much more effective for ROI), so be prepared to monitor your ad buys and optimize as needed for profit.


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