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Learn How to Calculate CPM Before You Invest on Advertising

Rahul Thadani
CPM literally means Cost Per Mille, or Cost Per Thousand Impressions. It is a method used by advertisers to ascertain the cost-effectiveness of their ad campaigns and it helps them to plan their campaigns and strategies in a better manner in the future.
In the advertising world there are several methods that companies use in order to calculate the finances involved and the allocation of the advertising budget as well.
It does not make sound financial sense to simply spend money on advertising without any limitations, so it is absolutely necessary to make a proper plan of the channels in which the money will be spent, and to also ascertain the sources of revenue and the manner in which it is distributed.
CPM used to be known as Cost Per Mille in the conventional advertising world, and in some cases, it still refers to that. But online advertising has now become the primary concern of many advertisers, and this is where this concept is most applicable today.
In the online advertising world, CPM refers to Cost Per Thousand Impressions, and this is a means of calculating how much money is being spent on a specific campaign in order to complete 1,000 different actions.
The 'action' mentioned here differs from company to company, and from campaign to campaign. For advertisers who regularly indulge in outdoor advertising in a big way, an action or an 'impression' can signify someone looking at the advertisement and making an inquiry about it.
In the online world, an impression can mean clicking on the ad, or filling out a form, or recommending someone else's email address or actually buying a certain product or service.

What Does CPM Mean in Internet Advertising

Every ad campaign is set into motion with the sole purpose of getting large viewership and attracting as many customers as possible, but it is also necessary for the advertisers to know how cost-effective the campaign is.
If a campaign is costing too much and getting in too little revenue, it needs to be scrapped. On the other hand, if a campaign is very cost-effective and is getting a huge response for little outlay, the advertiser should make the most of the situation.
In the world of Internet advertising, the actual money spent is quite less. This is exactly the reason why it has become such a popular method of reaching out to people.
The method of ascertaining the efficiency of Internet advertising has changed over the years, and so has the method of payment between the advertiser and the publisher. Today, CPA (Cost Per Action) has overtaken the concept of Pay Per Click (PPC) in this world, and there are sure to be many changes in the future.
In Internet advertising, there is a better chance of a larger number of people seeing an ad so it is necessary to calculate the cost-efficiency of the campaign, so that the advertiser can keep Internet advertising costs as low as possible.
Each view of the ad may lead to certain actions, and it is completely in the hands of the advertiser to decide what action qualifies as applicable for him to calculate CPM.

Calculating CPM

Calculating CPM is a rather simple task, but it needs some reliable data and numbers in order to be calculated easily. Say there is a particular ad campaign that makes 100,000 impressions through various mediums including the Internet, and it costs $500 for the campaign to be set into motion.
The first thing to do will be to calculate the number of units of advertising, which is calculated as the number of impressions divided by 1,000. In this case, the number of units will be 100,000 / 1,000, which is equal to 100.
Now dividing the money spent with this figure will give you the CPM. Hence in this case the CPM is 500 / 100, or $5. Thus the cost of making 1,000 impressions to the company is $5. You can also lay down a simple formula for calculating CPM as follows:

CPM = Total money spent / Number of impressions by the thousand
CPM is a very necessary tool for advertisers. Not only does it let one check the effectiveness of a particular campaign, it also lets one compare the effectiveness of different mediums when compared with each other. This information ultimately helps advertisers strategize their campaigns, and this is why knowing all about CPM is so important for advertisers.