In digital marketing, it's common to come across a series of acronyms: CPM, CAC, ROAS, ROI and many others!
This alphabet soup can get in the way of professionals who need to analyze the results of paid media campaigns. Without understanding what each acronym stands for and what data they show, it can be difficult to gain insights into the effectiveness of ads.
One of these acronyms is CPM, or Cost Per Thousand Impressions. In this article, we'll explore what CPM is, how it's calculated and why it's so important for paid media strategies.
What is CPM?
CPM stands for Cost Per Thousand Impressions.
But before we talk about CPM, we need to understand what an impression is, how it is calculated by social networks and how it differs from reach.
Is Impression the Same as Reach?
According to Instagram, impressions are "the number of times your posts, stories, reels, videos or live videos appeared on screen, including in ads".
Reach is explained as "the number of unique accounts that have seen your content at least once, including ads. Content includes posts, stories, reels, videos and live videos."
In other words, each time your ad appears to a user, that's one impression. If it appears twice, two impressions are counted. And reach is the number of users who have seen the campaign, regardless of the number of times. It will only be counted once.
So CPM Only Counts Impressions?
Yes. CPM is a metric that shows how much the advertiser had to pay to get a thousand impressions on one of their ads. This data is recorded in display campaigns, where ads are shown on websites, blogs and social networks.
Within your paid media strategy, CPM is the data that will help a marketer determine whether campaigns have been effective in reaching the desired target audience.
How is the CPM calculated?
Calculating CPM is simple.
The first step is to divide the total cost of the campaign by the number of impressions it generated. This way, you know the cost of each impression individually.
CPM = Total Campaign Cost / Number of Impressions
Finally, you multiply this result by a thousand. With this process, you know exactly what it cost to get the thousand CPM impressions.
CPM = (Total Campaign Cost / Number of Impressions) x 1000
Shall we look at an example? If an advertising campaign cost R$500 and generated 36,240 impressions, the CPM would be calculated as follows:
CPM = (500 / 36.240) x 1000
CPM = 0.01379 x 1000
CPM = 13.79
This means that the advertiser paid approximately R$13.80 for every thousand impressions of his ad.
Why is CPM important?
Is it good to know what CPM is? Yes, but knowing how to interpret this metric and extract insights is more important. This knowledge is what will change the way marketers structure paid media campaigns.
In this article, we'll explain three insights that can be drawn from CPM.
Evaluating Costs and Adjusting Budgets
Using CPM, marketers can quickly assess the cost of a campaign in relation to the number of impressions it generates, and make comparisons with previously run ads.
If the costs are rising, we can infer that there are problems with the structure of the ad or the target audience. If the costs are lower, we can conclude that the effectiveness of that ad is greater, and therefore it has a better distribution.
Another way of using CPM to evaluate costs is to compare the results between platforms. Which channel had the best CPM? Which was the most expensive? This helps marketers make informed decisions about how to allocate the budget.
Forecasting Expenses and Planning Future Actions
Making predictions about paid media is less complicated than it sounds. Start by analyzing a campaign that performed well: was the amount allocated enough to generate the desired number of conversions? Yes, then start here.
By analyzing the CPM of ads that have helped increase sales, marketers can more accurately predict how much they will spend to achieve the necessary results each month.
This is especially useful for companies that have limited budgets and need to maximize the return on each investment.
Optimize Ad Results
Want to know if your campaign is effective? Use CPM as a parameter.
Monitoring CPM over time allows marketers to continually optimize their campaigns by adjusting ad elements such as target audience, ad format and distribution channel.
For example, if the CPM of a campaign increases over the months, this could indicate two scenarios: either the ad is not being shown to the right people or the message is not suitable for the target audience.
Problem with the target audience
Check that the target audience defined for the ads is correct and refine the segmentation, using demographic data, interests and behaviors as parameters. Sometimes a high CPM can be the result of inadequate targeting.
Message problems
Evaluate the quality of your ad. If it's not generating engagement and conversions, platform algorithms may increase the cost per impression. So run A/B tests and make adjustments to the design, message or call-to-action to make the ad more attractive.
Is CPM the Best Metric to Analyze?
It's not a question of which is the "best" and which is the "worst" performance indicator. CPM is just one of many metrics that marketers should consider when evaluating the results of a campaign.
Ultimately, other KPIs, such as click-through rate (CTR), conversion rate and return on investment (ROI), should also be used to evaluate the success of a paid media campaign.
Conclusion
In this article you learned how CPM is an essential metric in the arsenal of any digital marketer. By understanding a campaign's CPM, advertisers can quickly assess costs and make important decisions to maximize return on investment.
Want to keep learning about digital marketing? Here on the Pareto blog you'll find weekly posts on the most important marketing topics and market news. Follow along!
