Today, we’re going to answer the question: What is CPM?
In fact, understanding CPM like you will today is like having a genie that will grant your #1 wish.
No, not the wish where Chick-fil-a is open on Sundays. The other wish where you reach your target audience at a very low cost.
And such understanding has allowed us to properly budget and successfully optimize ad campaigns for the 50 million dollars in ad spend we manage every year for small businesses.
Now, this isn’t going to be an average definition of the marketing term.
We’re going to add some substance to this conversation by discussing why CPM is important, what is CPM marketing, what CPMs you can expect as you navigate various ad platforms and ad types, and how to get rock-bottom CPMs that help you reach more people for less money.
If you are a beginner just trying to understand what is CPM advertising, this post will make it extremely easy to understand.
If you are an advertising expert, keep reading. You’re guaranteed to have more than one AH-Ha moment and it doesn’t hurt to brush up on your skills.
So if you are looking for a well-rounded definition of CPM, stick with us until the end of the post.
Let’s get started!
Why is CPM Important?
So there is a portion of those reading this post that truly doesn’t mind throwing their advertising dollars into a fire.
For everyone else, CPM is important because it reflects your cost to reach your audience.
If you have an idea of your expected CPM before you start advertising, you can properly budget for success.
If your CPM is higher than your competitors, you are paying more than they are to reach the same audience.
In a way, CPM is similar to gas prices. When gas prices are low, you can go further for less money and when they are high, you have to spend more money to reach the same destination.
Unfortunately, there isn’t much you or we can do to influence the price of gas, but luckily for us, we can make small changes that help us reduce our CPM. More on that later in this post.
What is CPM?
CPM, also known as Cost Per Mille, is the cost advertisers pay to reach every 1,000 impressions.
An “impression” occurs every time someone views your ad.
You can calculate your CPM by taking the total amount spent on an ad campaign, divided by impressions, multiplied by 1,000.
We know that was a lot, so here is an example:
Example: If you spent $50 and got 10,000 impressions, your CPM was $5.
What CPMs to Expect?
Remember when we said CPMs are similar to gas prices?
Just like gas prices are different from region to region or station to station, CPMs differ depending on the advertising platform and even the ad type.
So we did the research for you and took a look at average CPMs on the most popular advertising platforms today: Facebook and Google.
Average CPMs on Facebook
Let’s look at Facebook Ads first.
- Facebook News Feed: $7.77
- Facebook Right Hand Placement: $2.28
- Facebook Marketplace: $3.39
- Facebook Audience Network: $7.84
- Facebook Messenger: $7.15
As you can see, even on Facebook, different placements will give you different CPM costs with Facebook Right Hand Placement being the cheapest.
Average CPMs on Google Ads
Now, let’s take a look at the average CPMs on Google Ads (formerly Google AdWords).
- Google Search Ads: $38.40
- Google Display Ads: $2.40
What we notice right out of the gate is that the median CPM for Google Search ads is 5 times higher than the most expensive average CPM on Facebook.
Now, is that a bad thing?
Ok, so here’s what we think…
There are instances where your CPM can be higher on Google but Google turns out to be more profitable for you. The key is to test different platforms and placements to discover the best performer.
The one thing these averages do help us understand is the budget needed to properly test. For platforms or audiences where the CPM is high, you may need a larger budget to measure performance.
Outside of budgeting, tracking and analyzing your CPMs will allow you to gauge the cost-effectiveness of an ad campaign.
How To Get Rock-bottom CPMs
If you want to reach your target audience for the lowest price possible, you must first understand what factors can determine your CPM.
Let’s take a look at the most common CPM Factors:
- Target audience: Who you target
- Schedule of dates for the campaign: Example is running ads on holidays may cost more
- Placement: Where you ads appear
- Frequency: The number of times your ad shows to the same audience
- Ad type: The type of ad you run
- Ad quality and relevance: How well your ads are engaging the audience
- Market demand: The demand for your target audience
- Market supply: How available and responsive your target audience
Now that you know the factors, how do you achieve rock-bottom CPMs?
The number one hands down thing you can do to lower your CPM is to create ads that your audience can’t help but engage with.
We know, that was super simple but it’s true.
Ads that perform poorly in terms of engagement and sentiment on Facebook and Google get punished with higher than average costs.
How to Create Effective Ad Campaigns
Ok, but how can you create and serve ads that your audience loves?
The first step is to target the right audience. We’d suggest split testing multiple audiences to find the one(s) that are the most effective.
The second step is to read this post about what is CTR. In that post, we give away the most effective tips and tricks to increase your CTR (aka engagement).
The quick version of that post is to test multiple ad creatives and ad types to see which ones prevail as most relevant to your target audience.
The second best thing you can do to lower your CPM is to watch the frequency of your ads.
Frequency measures how many times the same people see your ad. Ideally, you are excluding those who convert from seeing your ad, leaving only those who have not converted yet to continue to see your ad.
Thus, a high frequency is a sign of an ad that is not relevant which is not a good thing and will result in higher cost.
As a rule of thumb, keep your frequency below 3, and be sure to change your ads and or audience once your frequency begins to get too high.
In summary, CPM, also known as Cost Per Mille, is the cost advertisers pay to reach every 1,000 impressions.
It is worthwhile to consider your CPM before you advertise to properly budget to reach your target audience, and again once you are running ads to gauge the cost-effectiveness of an ad campaign.