How to calculate cpm on digital out-of-home
Cost per mille (CPM) / thousand contact price (CPM)
Coste per mille: short explanation
Cost per Mille (also: Cost-per-Mille or CPM for short) is a billing method for advertisements in the field of media planning. With the cost-per-mille method, also known as thousand contact price or thousand contact price, the price for an advertisement is billed per thousand views.
Cost per Mille is a very simple billing method for advertisements. It is used, for example, on television, in print products, in radio advertising or in online marketing. The advertiser pays the advertising network or the advertising partner a fixed amount if his ad has been shown to a thousand (different) people. On the Internet this means: 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, since it is easy to check on the Internet whether a website with the advertisement has been accessed. In addition, advertisements in online marketing can be placed 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 with TV or radio spots, for example.
The advertising business is still very profitable across all media and is the main 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 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 calculated?
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:
- From the net reach, which takes into account when users see the ad multiple times. In this calculation, duplicate views are not counted, so in the end 1000 different people saw the ad.
- From the gross reach, which does not take into account duplicate views, but counts every time the ad is viewed, regardless of who. It is therefore theoretically possible for a single user to see an ad 1000 times.
On this basis, the prices are calculated as follows:
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 determined or determined 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 larger ad is more expensive than a smaller one, and the ads that are placed in a more visible area of a website cost more than ads that are more hidden.
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 are negotiated by auction. This means that the advertiser enters a maximum bid, but only has to pay the next higher amount compared to his competitor. If, for example, advertiser A bids a maximum of 100 euros, while advertiser B bids a maximum of 90 euros, then advertiser A wins at a price of 91 euros. Once the price has been set, the advertising campaign will run until a defined budget is used up or the advertiser stops the campaign.
In the Google Display Network, currently the largest advertising network for websites, different billing processes 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
Billing per thousand contact prices is particularly suitable when an advertiser wants to increase brand awareness and reach. For example, CPM ads are cheaper than CPC ads and can therefore reach significantly more users for the same price. However, CPM-based ads are only really efficient if the ad has a high click-through rate.
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 10 clicks.
The higher the click-through rate (CTR) of an ad, the more suitable it is for billing according to CPM. In order for you to achieve high CTRs and thus leads, sales or other conversions, ads must be of high quality and high-click. According to Google, image ads or other multimedia formats are particularly suitable here as opposed to 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 most important advertising message, the date, already in the advertisement. Clicking on a landing page behind it is therefore not absolutely necessary.
CPM-based ads can be planned more precisely in terms of their reach. If 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
The biggest disadvantage of CPM-based ads is probably the unpredictable quality of the users reached and thus the unpredictable effectiveness of the advertising. Whether a user perceived the ad or is interested in the offer can only be vaguely determined with an ad based on CPM, as it is less aimed at the click. Google tries to counteract this problem in its display network with the so-called vCPM-based display: ActiveView technology is intended to ensure the visibility of the advertising. Nevertheless, it is difficult to prove the actual interest of the user and the visibility of the ad without a click.
Ads based on CPM are therefore less suitable for specifically increasing the traffic of a page. CPC-based ads are the better option here: They are displayed until the desired number of clicks is reached or the budget is used up.
With cost-per-mille-based advertisements, online advertising networks such as Google's display network, TV and radio stations and newspapers offer a simple method of billing for the marketing of advertisements. CPM billing is particularly suitable for achieving a large reach at low cost. A CPM basis can outperform billing based on clicks in terms of efficiency, especially with an ad design with strong clicks. The biggest problem in comparison to CPC billing, however, remains the cost-benefit balance.
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