When organizing a media or contextual advertising campaign on the network, any advertiser calculates its approximate budget. It is important for the customer of the advertising campaign to see how the funds are allocated for its implementation, whether the money is used for the purpose and with what effectiveness it is used. The calculation of the effectiveness of an advertising product in media planning is based on several indicators, one of which is the CPM index. What is this indicator, how to use it - find out below.
CPM - why do you need it
What is CPM in advertising has been known since the last century. The module was used in all advertising campaigns that took place in the media. Publishers, television and radio channels still use this indicator to calculate the cost of advertising. CPM is used when it comes to the price of a single ad serving, not to single recipients, but to thousands of potential buyers. Then the term was introduced into circulation. Owners of advertising sites could operate only on their circulation and thematic focus, therefore, the CPM indicator was determined, advertising taking into account this value was effective.
CPM Definition
A simple definition of CPM is the price per thousand. The name of the module comes from the English words Cost-Per-Thousand, where M is a Roman numeral meaning 1000. Thus, when asked what CPM is, we can say that this is the price per thousand impressions of an advertisement. The more times an advertisement appears on the pages of newspapers and magazines, the more often it sounds on the radio or flickers on a television channel - the greater the indicator of this coefficient.
Calculating CPM in Online Advertising Campaigns
On the Internet, the role of advertisements is usually played by banners - those same annoying pop-ups that users do not like so much, and which bring money to the owner of advertising platforms. The more popular the site, the more users browse this page of the Internet, the more expensive advertising on this site will cost the customer.
Advertisers are interested in the largest possible number of users who have seen this banner. Therefore, what is CPM can mathematically be shown in this way:
CPM = (total cost of the advertising order) / (planned number of banner views per day) * 1000.
Now it’s clear that CPM is what it is. In advertising, this is one of the most important indicators. The advertiser can calculate how much money needs to be paid to the site owner in order for the information to be shown to one thousand network users.
This calculation can be clearly demonstrated with a simple example. The cost of placing one banner on the website of a portal is, for example, $ 400 per week, statistics on this web page show that about 10 thousand users view the site in a week. Thus, a simple calculation gives the value:
CPM = $ 400 / 10,000 * 1000 = $ 4 per thousand impressions of advertising information.
Advertisers should understand that a simple banner demonstration on a thematic site is mostly informative. There is no guarantee that all ten thousand people who visit the page will click on the banner. Whether the visitor wants to follow the link or not depends on the attractiveness of the banner itself and the information that is posted on it. Each site will certainly provide all the data of interest for calculating the CPM parameter. What is beneficial to the owner of the site, you can understand. But advertising, its quality and interest for the end consumer are the tasks of the customer himself.
Support CTR module, calculation methods
To reduce costs, another indicator should be taken into account - the CTR index. The name also comes from the English language and completely sounds like a click-through rate - an indicator of clickability. CTR shows how many people clicked on the banner and went to the customer’s advertising page. This module directly depends on the correctness of the chosen site, because the more appropriate and necessary the advertisement on the site looks, the more likely it is that the site visitor will be interested in information and click on the banner. The method for calculating this indicator looks like this:
CTR = (number of users who clicked on the banner) / (planned number of banner views per day) * 100%.
For example, if out of 20 thousand people who saw the advertisement, 800 users followed the link, then the CTR is 800/20 000 * 100 = 4%, which is higher than the minimum acceptable value.
It has been experimentally proven that the minimum CTR is 3-5%. If less, then the cost per potential customer will exceed the expected profit, and advertising will be considered ineffective.
Using Indexes
CPM can be used when choosing a narrower target audience. For example, when ordering a banner, a site-site provides the advertiser with information about the age, gender, place of residence, hobby of all registered site visitors. Thus, the desired banner appears only for those users on whom this advertising product was designed. The budget of the advertising campaign is spent more economically and more efficiently.
You should also consider the activity of regular users. The more often the same visitor sees the same advertising product, the more often money is deducted from advertisers, but the customer no longer gets customers from this. Therefore, a competent calculation of the CPM and CTR indices, combined with an in-depth analysis of the information provided by this advertising platform, should bring the desired result to the customer.
Another point that should be considered at the beginning of the advertising campaign. Payment can be set either by CPM or by CTR. In other words, the customer must understand the essence of CPM banner advertising - that this is not payment for user clicks, but only for demonstrating an advertising product
Summarizing
To the question of what CPM is, one can answer that this parameter is one of the most important when analyzing the effectiveness of a particular advertisement, and it is also necessarily taken into account when calculating the budget of an advertising campaign. It takes into account the number of prospective contacts of potential consumers with advertising information, and the cost of placing a banner on several sites with a similar thematic focus. Taking into account these parameters, you can calculate the effectiveness of a particular advertising platform and successfully master the advertising budget.