Understanding Cost Per Mille(CPM) in Digital Advertising

Content Highlights:

• How to Calculate Cost per Mille (CPM)?
• The Importance of Tracking Cost per Mille (CPM) to Publishers
• How to Monitor Cost per Mille (CPM) to Ensure Good Performance?
• Conclusion

What is Cost per Mille (CPM)?

For publishers, aligning with this basic knowledge allows them to gauge the effectiveness of their inventory better, optimize pricing strategies, and ultimately prove the value of their ad space to potential buyers. 

By analyzing CPM alongside critical metrics such as viewability, click-through rates (CTR), and audience engagement, publishers can enhance their ad offerings and maximize revenue opportunities.

Advertisers use CPM to understand the cost of displaying their ads on websites or apps. CPM focuses on how often users see the ad, unlike paying for clicks or conversions. This allows advertisers to set budgets, compare ad networks, and optimize campaigns.

How to Calculate Cost per Mille (CPM)?

Calculating CPM is straightforward. You just need two pieces of information: the total amount spent on the ad campaign and the total number of times the ad was displayed.

Here's the formula:

Consider this scenario: an advertiser invests $500 in a campaign, which results in   50,000 impressions. Now, to calculate  the CPM, using the above formula:

CPM = ($500 / 50,000) x 1,000
CPM = $10

This means the advertiser paid $10 every 1,000 times their ad was shown.  While CPM is a valuable tool for comparing costs across ad networks and formats, it only tells part of the story since it is independent of the quality or effectiveness of the impressions. 

To get a complete picture, the CPM rates are usually analyzed alongside other metrics, such as Click-Through Rates (CTRs) or Conversion Rates, which can help advertisers evaluate a campaign's overall success.

To learn more about this and more advanced metrics that publishers should look out for and how to optimize them effectively, download our free eBook by clicking the image below:

The Importance of Tracking Cost per Mille (CPM) to Publishers

For publishers, understanding CPM unlocks opportunities for maximizing ad revenue. CPM rates act as a compass, guiding publishers toward optimal pricing for their ad space. 

1. Revenue Optimization: CPM empowers publishers to set competitive prices for their ad inventory, and revenue maximization.
2. Premium Advertisers: Publishers can pinpoint advertisers willing to pay top dollar for their ad space. 
3. Ad Formats: CPM data highlights the ad formats that perform best and generate the most revenue.
4. Data-Driven Decisions: It equips publishers with valuable data to make informed choices about their ad strategy, pricing model, and revenue maximization efforts. 

CPM  for advertisers is the counterpart to publishers' RPM. While CPM represents the cost advertisers pay for a thousand impressions of their ads, RPM reflects the revenue publishers earn for the same number of impressions. 

According to a combined report by Digiday and Permutive: The State of Ad Revenue, released last year,  publishers voted that their top-cited KPIs for measuring ad revenue outcomes include CPM (61%), followed by Ad Campaign Performance (46%), Customer Lifetime Value (43%), and Ad Pricing & Yield (39%).

*Image source: Digiday & Permutive, 2023.

As mentioned above, CPM should be analyzed in conjunction with other metrics. By doing so, publishers can gain a more comprehensive understanding of their ad performance.

How to Monitor Cost per Mille (CPM) to Ensure Good Performance?

Publishers can access Prebid Analytics to track advertisers' winning CPM and Bid CPM by using an analytics tool, such as AY Yield Intelligence. This granular tracking extends to each ad unit, device, and other crucial dimensions.

With this information, they can optimize their ad strategies, identify trends, and make data-driven decisions to maximize their revenue potential.

By understanding the bidding behavior of advertisers, publishers can adjust floor prices, target specific audience segments, and enhance the overall effectiveness of their ad monetization efforts. 

With AY’s holistic Dashboard and Alert templates, publishers have the insights they need to stay competitive in the ever-evolving digital advertising landscape. 

It is crucial to know that the advertiser dashboard template in Yield Intelligence provides data useful for sales teams when proposing direct deals. The  AdOps team adjusts pricing floors to prevent brands from getting the inventory for cheaper from one source.

It's also worth noting from this dashboard which of your biggest advertisers are and at what CPM they buy your inventory. The same advertiser can bid on your inventory through prebid SSPs, AdX, Amazon, etc.

Remember that not all prebid partners share that data, but some do, as do AdX and Amazon (you can see under D revenue in this case).

Conclusion

In our next article, we discussed Viewability, another important metric that, combined with CPM, provides deeper insights into the effectiveness of your ad inventory. This combination of metrics allows publishers to optimize their strategies, enhance ad visibility, and ultimately increase revenue.

Ready to optimize your RPM for better revenue? Download our comprehensive eBook, "Boosting Performance Metrics for Digital Publishers," for advanced insights and strategies tailored to your needs. Click the image below to download.