Cost Per Thousand (CPM) Definition and Its Role in Marketing

Cost Per Thousand (CPM)

Investopedia / Julie Bang

What Is Cost Per Thousand (CPM)?

Cost per thousand (CPM), also called cost per mille, is a marketing term used to denote the price of 1,000 advertisement impressions on one web page. If a website publisher charges $2.00 CPM, that means an advertiser must pay $2.00 for every 1,000 impressions of its ad. The "M" in CPM represents the word "mille," which is Latin for "thousands."

Key Takeaways

  • Cost per thousand (CPM) is a marketing term that refers to the cost an advertiser pays per one thousand advertisement impressions on a web page. 
  • An impression is a metric that counts the number of ad views or viewer engagements that an advertisement receives.
  • CPM is one of several methods used to price online ads; other methods include cost per click (CPC) and cost per acquisition (CPA).
  • Disadvantages of using CPM include incorrectly counting impressions due to duplicate views, ads that fail to load, and advertising fraud.

What Is Cost Per Thousand?

Understanding Cost Per Thousand (CPM)

Cost per thousand (CPM) is the most common method for pricing web ads in digital marketing. The method relies on impressions, which is a metric that counts the number of digital views or engagements for a particular advertisement. Impressions are also known as "ad views." Advertisers pay website owners a set fee for every thousand impressions of an ad. While an impression measures how many times an ad was displayed on a site, it does not measure whether an ad was clicked on.

The click-through rate (CTR) measures whether an ad was clicked on, representing the percentage of people who saw the ad and clicked on it. Advertisers frequently measure the success of a CPM campaign by its CTR, For example, an advertisement that receives two clicks for every 100 impressions has a 2% CTR. You cannot measure an advertisement's success by CTR alone because an ad that a reader views but does not click may still have an impact.

CPM vs. CPC and CPA

CPM represents one of several methods used to price website ads. Another pricing model is cost per click (CPC), where the advertiser pays each time a website visitor clicks on the ad. Cost per click is also known as pay per click (PPC). Cost per acquisition (CPA) is where the advertiser only pays each time a website visitor makes a purchase after clicking an ad.

Different pricing methods are more appropriate for some ad campaigns than others. CPM makes the most sense for a campaign focused on heightening brand awareness or delivering a specific message. In this case, the CTR matters less, since the exposure from having an ad prominently placed on a high-traffic website helps promote a company's brand name or message, even if visitors do not click on the ad.

Website publishers like CPM advertising because they get paid for just displaying ads. However, because CPM rates are low—the $2.00 rate mentioned above is fairly standard—a website needs robust traffic to make decent money from CPM ads. Rates for social media advertising, however, tend to be higher and can vary, depending on the platform. For 2021, the average social media advertising CPM for Facebook and Instagram is almost $9 while the average CPM for LinkedIn and Twitter is about $6.50.

Companies focused less on mass appeal and more on promoting a product to a niche audience gravitate toward CPC or CPA advertising since they only have to pay when visitors click through to their site or purchase the advertised product.

Impressions vs. Page Views

It is possible for the number of ad impressions to differ from the number of visitors to the website displaying the ad. For example, an ad might receive placement in two locations on a website, such as a horizontal banner across the top of the page and a vertical side banner alongside the page's text. In this scenario, the advertiser pays for two impressions per page view.

Criticism of Cost Per Thousand (CPM)

Criticism of CPM often stems from the challenges of accurately counting impressions. Some advertisers question if they are being charged fairly. Problems arise regarding duplicate views from the same visitor or Internet bots (short for "robots") visiting sites and skewing the total number of views. Also, if an ad fails to load or incompletely loads, then these ads should not be counted as impressions. Advertising fraud can happen when an unscrupulous site owner uses automated scripts to send traffic to a website with the purpose of increasing the number of views.

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