CPM - what is it? How is CPM used in advertising?
By organizing a media or contextual advertising campaign on the network, any advertiser calculates its approximate budget. For the customer of an advertising campaign, it is important to see how the funds are allocated for its conduct, whether money is spent for the intended purpose and with what effectiveness they are used. The calculation of the effectiveness of the 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 - we will find out below.
CPM -why is it necessary
What is CPM in advertising, 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 one display of advertising, not to individual addressees, but to a thousand possible buyers. At the same time, this term was introduced into circulation. Owners of advertising platforms could operate only with their circulation and thematic focus, so CPM was determined, advertising with this value was effective.
Definition of CPM
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 the Roman numeral meaning 1000. Thus, the question of what CPM is, you can answer that this is the price for one thousand impressions of the advertisement. The more advertisements appear on the pages of newspapers and magazines, the more often it sounds on the radio or flashes on a television channel - the greater the indicator of this coefficient.
Calculating CPM in online advertising campaigns
On the Internet, the role of an advertisement is usually played by banners - the same annoying pop-up windows that users do not like so much and who bring money to the owner of advertising platforms. The more popular the site, the more users are browsing 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 saw this banner. Therefore, what is CPM, mathematically can be shown thus:
CPM = (total cost of the advertising order) / (planned number of banner views per day) * 1000.
Now it's clear, CPM - what it is. In advertising, this is one of the most important indicators. The advertiser can calculate how much money to pay to the owner of the site so that the information was shown to one thousand users of the network.
This calculation can be demonstrated by a simple example. The cost of placing a banner on the website of any portal is, for example, 400 $ per week, the statistics of this Internet page show that over a week the site is browsing about 10 thousand users. Thus, a simple calculation gives a value:
CPM = 400 $ / 10 000 * 1000 = 4 $ for one thousand impressions of advertising information.
Advertisers should understand that a simple demonstration of a banner on a thematic site is mostly informative. There is no guarantee that all ten thousand people who visited the page, necessarily click on the banner. Whether a visitor wants to click on the link or not depends only on the attractiveness of the banner itself and the information that is placed on it. Each site will provide all the necessary data to calculate the CPM parameter. That it is beneficial to the owner of the site, you can understand. But advertising, its quality and interest for the end user are included in the tasks of the customer.
Auxiliary module CTR, calculation methods
To reduce costs, one more indicator should be taken into account - the CTR index. The name also came from English and fully sounds like click-through rate. 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 relevant and necessary it looks advertising on the site, the more likely that the visitor of the site will be interested in information and click on the banner. The method of calculating this indicator is as follows:
CTR = (number of users who clicked on the banner) / (planned number of banner views per day) * 100%.
For example, if from an 20 thousand people who saw an ad, clicked on the 800 link of users, then the CTR is 800 / 20 000 * 100 = 4%, which is higher than the minimum allowed value.
It has been proven by experience 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.
CPM can be used to select a narrower target audience. For example, when ordering a banner placement, the site-site provides the advertiser with information about the age, field, place of residence, hobbies of all registered visitors to the site. Thus, the desired banner appears only for those users on whom the given advertising product was designed. The budget of the advertising campaign is spent more economically and more efficiently.
Also, the activity of regular users should be taken into account. The more often one and the same visitor sees the same advertising product, the more money is written off from advertisers, but the customer does not get any more from customers. Therefore, a competent calculation of the CPM and CTR indices combined with a deep 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 billed either by CPM or by CTR. In other words, the customer should understand the essence of banner advertising on the CPM module - that it is not payment for clicks of users, but only for the demonstration of the advertising product
When asked what CPM is, you can answer that this parameter is one of the most important when analyzing the effectiveness of one or another advertisement, and it is also taken into account when calculating the budget of an advertising campaign. It takes into account the number of prospective customers' contacts with advertising information, and the cost of placing a banner on several sites with a similar thematic focus. Taking into account these parameters, it is possible to calculate the effectiveness of one or another advertising platform and successfully master the advertising budget.