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What Is the Role of CPM in Online Advertising?

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  • Written By: Alex Newth
  • Edited By: Angela B.
  • Last Modified Date: 18 September 2016
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Cost per mille (CPM) is an online marketing element that refers to how much advertising costs a business for every 1,000 impressions. This term is used most frequently with impression advertising, in which the business’s banner is displayed on a website and the business is charged for every 1,000 impressions, or ad views. CPM in online advertising also is used to measure how much other advertising vehicles cost, so the business knows the most effective keywords to bid on. Another role of CPM in online advertising is cost control, especially with new businesses, so the business does not overspend its advertising budget.

CPM in online advertising is a term used most frequently with impression marketing, in which a business commissions either an advertising hub or individual website to display the business’s banner. For example, if a website says businesses can market on the site for $5 US Dollars (USD) CPM, then the website is saying the business will have its ad displayed 1,000 times for $5 USD. This is much easier than saying each ad costs $0.005 USD and gives the business a much better grasp on what it is spending. It is estimated that about 1 percent of all online users will react to an ad, so this makes 1,000 a good number for business analysts to work with.

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While CPM in online advertising is usually paired with impression marketing, it also can be paired with other marketing methods so businesses know how much they are spending. In cost per click (CPC) advertising, the business pays for ad clicks; this tells the business what it is spending per click, but it is unrealistic to think that each user will click the ad. Analysts usually will measure how frequently an ad is clicked, and businesses use this to bid on the most effective keyword. If one ad costs $2 USD per click and it is estimated that the ad will be clicked 20 times out of 1,000, then the CPM is $40 USD.

One of the primary roles of CPM in online advertising is cost control, especially for new businesses. If an online business has a small marketing budget, then it cannot afford to spend money unless it sees results and it may only buy several thousand impressions. By only buying several thousand, and not having the ad constantly run, the business will be able to reach many potential customers without overstepping its budget. This also lets the business estimate and plan for online advertising costs.

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