Cost Per Mille (CPM) / Thousand Contact Price (CPM)

Brief Explanation

Cost per Mille (also: Cost-per-Mille or CPM for short) is a billing method for advertisements in media planning. An ad bill per thousand views with the cost-per-mille process, also known as a thousand contact price or thousand contact price.

Detailed Explanation

Cost per Mille is a straightforward billing method for advertisements. It uses, for example, on television, in print products, in radio advertising, or online marketing. The advertiser pays the advertising network or partner a fixed amount if his ad is shown to a thousand (different) people. A previously defined sum is due every time an advertisement is displayed a thousand times on one or more websites. The method is therefore also known as the thousand-contact price or the thousand-contact price (CPM).

The Internet is particularly suitable for the CPM billing method, as it is easy to check on the network whether a website with the advertisement has access. In addition, advertisements in online marketing place in a more targeted manner with the help of the collected user data and various tracking mechanisms. In this way, advertisers can reach the desired target group better than TV or radio spots.

The advertising business is still very profitable across all media and is the primary source of income for many publishers. THE CPM model is one of the most frequently used models, along with CPC billing (cost per click). On the Internet, advertising networks such as Google’s display network or Facebook’s business control advertising measures and make a large part of their profit in this way. The networks define, for example, the requirements for the ad design, offer the advertiser the right partner websites to display the ad, and determine the prices per thousands of contacts. The latter is determined based on certain factors from the advertising partner, advertiser, and the ad.

How are the Costs for the CPM process calculates?

With CPM, the advertiser pays for one thousand contacts between his ad and the user. To determine the price, two different bases are initially assumed:

  1. From the net reach, which takes into account when users see the ad multiple times. In this calculation, duplicate views do not count, so 1000 different people saw the ad in the end.
  2. From the gross reach, which does not take into account duplicate views but counts every time the ad view, regardless of who. It is, therefore, theoretically possible for a single user to see an ad 1000 times.

Example:

Cost Per Mille (CPM) –
The example.de website reaches 100,000 unique users per month. An advertisement with net reach costs 500 euros per month. That makes a net CPM of:

The exact price of an ad is determines based on various factors, either by the advertising network or by the advertising partner (publisher of the website, newspaper, etc.). For example, advertising on a high-reach page is more expensive than a weaker one, a giant ad is more expensive than a smaller one, and the ads placed in a more visible area of ​​a website cost more than more hidden ads.

How much the advertiser is ultimately willing to pay at most, he can determine himself in advertising networks. Similar to other billing methods such as CPC, CPM prices negotiate by auction. It means that the advertiser enters a maximum bid but only pays the following higher amount than his competitor. For example, advertiser A bids a maximum of 100 euros, while advertiser B bids a maximum of 90 euros, then advertiser A wins for 91 euros. Once the price is set, the advertising campaign will run until a defined budget uses up or the advertiser stops the movement.

In the Google Display Network, currently the most prominent advertising network for websites, various billing methods can compete against each other in auctions: Here, for example, participants with CPC bids bid on the same advertising spaces as participants with CPM bids.

Advantages of the CPM process

Cost Per Mille (CPM) –

Billing per thousand contact price is particularly suitable when an advertiser wants to increase brand awareness and reach. For example, CPM ads are cheaper than CPC ads and can get significantly more users for the same price. However, CPM-based ads are only really efficient if the ad has a high click-through rate.

Example:

You pay 10 euros for a CPM ad. At this price, you can reach 1000 users. The ad has a CTR of 5%. That means: For 10 euros you get 50 clicks on your page.

A CPC ad, on the other hand, costs 1 euro per click. So for 10 euros, you would only get ten clicks.

The higher the click-through rate (CTR) of an ad, the more suitable it is for billing according to CPM. To achieve high CTRs and thus leads, sales, or other conversions, ads must be high quality and high-click. According to Google, image ads or other multimedia formats are particularly suitable here instead of text ads. In addition, there is advertising content that does not require the user to click on the ad. Advertisements for events or publications, for example, have the critical advertising message, the date, already in the ad. Clicking on a landing page behind it is therefore not necessary.

CPM-based ads plan more precisely in terms of their reach. Suppose advertisers want to increase their brand awareness. They can use advertisements calculated using CPM to predict exactly how many users they will reach.

Disadvantages of the CPM process

Cost Per Mille (CPM) –

The most significant disadvantage of CPM-based ads is probably the unpredictable quality of the user’s reach and thus the unexpected effects of the advertising. Whether a user has noticed the ad or is interested in the offer can only be determined vaguely with an ad based on CPM, as it less aim at the click. Nevertheless, it isn’t easy to prove the user’s actual interest and the ad’s visibility without a click. Google tries to counteract this problem in its display network with the so-called vCPM-based display: ActiveView technology intends to ensure advertising visibility.

Ads based on CPM are therefore less suitable for specifically increasing the traffic of a page. CPC-based ads better option: They display until the desired number of clicks reaches, or the budget uses up.