Within modern advertising, cpm is a measurement used to calculate the amount of money an advertiser needs to pay a company based on the amount of visitors or responses they get to their ads.
But what exactly does cpm stand for, and how is it used within advertising?
What Is CPM?
Cpm stands for ‘cost per mile’ – which in advertising terms correlates to ‘cost per thousand’, that is, the amount of money owed to a website or browser host per thousand views received on any individual ad.
How Is CPM Used?
In business terms, this is a win-win situation for both the advertiser and the website owner.
The website owners themselves can claim a few perks from this process, with the main one being the amount of money they can earn from advertisers who receive traffic by posting their ads on the site.
This obviously works best if the website or page in question has a large following, or has a large amount of daily traffic, however smaller entities can receive advertising deals with ad companies looking to diversify their reach.
This level of advertising is often seen through twitter and other such sites, where pages with a specific amount of traffic – usually over a thousand followers – can make agreements with ad companies who will essentially exploit the attention they get to attain their own customers.
With this, the website also stands to potentially get new traffic to their own website, although this only tends to occur in situations where there is a mutually beneficial contract between the two entities, and ultimately is entirely context dependent – for example, what type of ad company they are, and what type of business the website owner is operating.
The Ad Company
Despite having to pay a certain percentage of the profits to the website host, the ad company still makes large amounts of revenue from new customers who discover their services through the host site.
This new audience tends to have a word of mouth effect, with those new customers then telling others, and exponentially growing the client base over time.
Of course, this isn’t always the case, but successful partnerships can attain large profits and can prove mutually beneficial.
Most companies posting advertisements usually do this through a multitude of different channels, amassing large followings or customer bases for whatever service it is they are selling.
How Is CPM Calculated?
This is important for both sides of the arrangement, as the advertising body needs to know how much they will need (and are prepared) to pay, and the website host needs to have an accurate understanding of what they stand to gain – and the amount of traffic they need to deliver to attain payment.
The calculation tends to go as follows:
- Total number of impressions/visits = 500,000.
- Total cost of advertising = $2,500.
2,500/500,000 x 1000 = $5.00 dollars.
- Cost per 1000 impressions/visits = $5 dollars.
What Does This Mean?
Essentially, this means that for every 1000 visitors (or impressions) that the owner of the advertisement receives, they then have to pay the owner of the hosting website or page $5 dollars.
Of course, this doesn’t sound like a lot of money, and it isn’t, but if you are a popular website or page on social media, you can stand to make a sizable amount of money through this method.
Is It Sustainable?
This business method is not only viable – in the sense that both parties can continually make profit – but also sustainable. However, this is entirely dependent on the dedication, and continued popularity, of both parties.
The Importance Of Popularity
Take for example a popular Instagram influencer.
Many of these influencers have advertising deals with specific brands, companies, and products, and the process can prove lucrative for everyone involved – with the companies exploiting the large followings these people have, and the influencers themselves collecting a tidy profit from the advertising company.
However, if there was some scandal involving the influencer (large enough to lose followers), or if the fashion trend, product, or service they are offering suddenly becomes unpopular or undesirable, then the amount of traffic the advertisers will get will dwindle, and so will the profits of the influencer.
When Things Go Wrong
In these worst case scenarios, the advertiser will usually pull out of their deal, cutting off the stream of revenue to the influencer, and moving their business elsewhere.
This is sadly something that is commonplace through this type of practice, and is a side effect of the online business model – particularly one where the continued success is based on public opinion, which as we all know can be fickle and fleeting at best.
What Can Cause Breakdowns?
If the web host is an influencer, or media personality, then there are expectations to maintain a certain image and level of fame – or at the very least, the image and numbers they had when the advertisers jumped on board.
On the flip side, if the advertising company – or the product they push – is caught in a scandal or bad publicity, the popular web host might choose to cut ties to save their own skin and preserve the brand.
Similarly, if they are required to do advertisements for the company, there will be scripts to read, and specific things they are required to say to make their money. If they do not do this, or deviate and bad mouth the company, they will often lose sponsorship.
And there we have it, everything you need to know about cpm, how it is used in the advertising world, and the conditions these relationships usually exist under.
Online advertising can be difficult, and working relationships can be tumultuous, however, with a savvy business model, and a well chosen partnership, both parties can achieve long term financial success.