What does CPM mean? Simply explained!

There are different billing models for online advertising. One of them is CPM or Cost per Mille. In this case, costs are only incurred when an ad has reached a thousand views or impressions. But what exactly does CPM mean, when is this method of pricing worthwhile and who benefits from cost per mille?

What is Cost per Mille all about?

As an advertiser who wants to place an online ad, you are not infrequently faced with the challenge of deciding on a sensible billing model. Have you stumbled across the term CPM or TKP in this context and asked yourself: “What does CPM mean?” CPM is the abbreviation for Cost per Mille. In Germany, this translates into “price per thousand contacts”, which is why the synonymous abbreviation TKP is just as common.

CPM describes the price you pay as an advertiser when your ad reaches 1,000 potential customers. It is not the click or the interaction that counts, but only the impressions or the visual contact. Cost per mille can be used for various advertising formats. It is mainly used in online marketing, but also in print or radio advertising. With CPM it is possible to analyse marketing campaigns in a targeted way and to influence the performance of your campaign.

How is the CPM calculated?

Now that we have answered the question “What does CPM mean?”, the next question is: How is CPM calculated?

The formula for this is:

CPM = (cost / impressions) x 1,000.

So you divide the total costs of an advertising campaign by the total number of impressions and multiply the result by 1,000.

Example:

A campaign costs 100 euros and has achieved 20,000 impressions. So the calculation is:

(100/20,000) * 1,000 = 5 euros.

In this case, you would pay 5 euros each for 1,000 impressions.

What are the advantages and disadvantages of CPM?

When is CPM used and what are the advantages and disadvantages of the billing model?

The advantages of CPM

First and foremost, CPM is always suitable when you want to increase your reach and raise your brand awareness. CPM is significantly cheaper than CPC (cost-per-click). On average, you pay the same amount but reach twice as many people. With CPM, you present your offer to a broad mass.

Important: Your ad should have a high click-through rate. The higher the quality and click-through rate of your ad, the more useful the CPM payment model is. The click-through rate indicates the relationship between the number of impressions and the number of clicks.

According to Google, CPM works particularly well for multimedia formats such as images or product videos. This means that content that the user does not have to click on to get an impression works particularly well. Avoid pure text ads with Cost per Mille. Use the power of visual advertising such as banners or short films. You can already pack important information, messages or data in images.

When creating CPM ads, as with any such campaign, make sure that you conduct a target group analysis as closely as possible in advance. This is the only way to reach the people who are most likely to be interested in your products or services.

What else does CPM mean for you as an online shop operator? It can make your budgeting easier. You can calculate the costs per thousand impressions in advance and incorporate them into your campaign planning and marketing strategy. Furthermore, CPM is an excellent way to compare different ad formats.

The disadvantages of CPM

However, CPM has certain limitations. Sometimes it doesn’t tell you much about the success of your ad because it only measures impressions, not actual clicks on your ad. To get a more complete picture of an ad’s performance, you need to analyse other metrics.

So with a CPM model, the biggest disadvantage is that you have no guarantee about the effect and action. Whether the user reacts to the ad or not, you don’t know in the end. Even if Google uses various technologies to increase the visibility of the ads, in the end you can only vaguely define the effect.

So if your goal is to increase traffic on a page and generate concrete actions such as sales or registrations, you should rather opt for another model such as CPC instead of CPM. These are then played out as often as necessary until the budget is used up. CPA, cost-per-action, would also be conceivable.

Another disadvantage of CPM is the lack of accuracy. The number of impressions can be misleading because not every impression means that it has attracted attention. For example, it is often the case that an ad is played on a website and the user actually sees it, but does not consciously notice it. If ad blockers are used, display ads are blocked, which further reduces their effectiveness.

What does CPM mean compared to CPC, CPA or CPL?

You may ask, what does CPM mean compared to other models? While CPM refers to the cost incurred when an ad has achieved a thousand impressions or views, the CPC (cost-per-click) model incurs a cost when a user clicks on an ad. This model is particularly suitable if your goal is to drive traffic to your website.

Another model is CPA (cost-per-action). Here, costs are incurred when a user performs a certain action, such as making a purchase, signing up for a newsletter or filling out a form.

Finally, there is CPL (cost-per-lead), where the costs for generating a qualified lead, i.e. a potential customer, are calculated. This model is mainly used in industries where customer acquisition is an important component.

So, what does CPM mean in the context of these other models? CPM is particularly useful when the goal of a campaign is to increase brand awareness and reach a broad audience, while CPC, CPA and CPL are more focused on driving more specific actions from users. Accordingly, we hold that the choice of the right model strongly depends on the objectives of your advertising campaign.

Who is CPM interesting for?

Cost per Mille focuses on quantity before quality. Basically, you should always consider Cost per Mille if you want to increase the reach of your campaign, raise brand awareness and reach a broad target group. In these cases, you will fare best with the price strategy.

When it comes to the question of what does CPM mean for online shops, one topic in particular is relevant: Product or brand launches. With this form of direct marketing, you can reach a wide audience within a very short time. You arouse initial interest and increase awareness. CPM campaigns are just as exciting for announcing events and functions.

If you use retargeting for CPM ads, you have the opportunity to bring back potential buyers who have left the checkout before completing their order. This works particularly well with a dropout email or an exit-intent pop-up, for example. In this way, without pressure or effort, you convince customers you thought were lost with a personalised and suitable offer to come back into the sales process and ultimately convert successfully. We would be happy to personally answer not only the question “What does CPM mean?” but also what alternative options you have with the uptain® ALGORITHM.

Can I combine CPM and CPC?

Yes and no. Within one campaign you have to decide for CPM or CPC. However, you can always create two different campaigns and apply CPM to one and CPC to the other.

How is an impression counted with CPM?

An impression means that the person to whom the ad is played sees it. However, the measured number only indicates how often it was played. It is not possible to tell whether the user has actually seen it.

What is a good CPM price?

Of course, this depends on your industry, your product and your service. You can expect a price between two and six euros per 10,000 impressions.

CPM first choice for reach and raising your profile

CPM is one of the most important billing methods in online marketing. If you want to focus on increasing your reach and brand awareness, CPM offers you a cost-effective option and helps you analyse as well as budget your marketing campaigns. Compared to other models such as CPC (cost-per-click), CPM allows you to reach more people without paying more.

Remember that ads with high click-through rates and visual content such as images or videos are usually more successful in reaching your target audience. You need to define them precisely in advance anyway in order to reach the people who are really interested in your products or services.

What does CPM mean for your online shop? A relevant question if you are looking for an effective strategy to maximise your reach and increase your brand awareness. However, be aware of the limitations and optimise your ad accordingly.

3 Tips to finish with:

Run A/B tests to see which type of ad is well received. Test different elements, such as headlines, images or call-to-actions.

Set the timing and location of ad placement to ensure you always get good performance. Analyse the habits of your target audience.

Monitor the performance of your ads and make adjustments and optimisations if necessary. Use other metrics such as click-through rate, conversion and other relevant data for analysis.