What Does Cost Per Thousand (CPM) Mean?

Cost per thousand (CPM) is a marketing term used to denote the price of 1,000 advertisement impressions on one web page. CPM is a metric that helps companies measure how efficient their advertising is by telling them how much money is paid for a single click on a website ad. For instance, an advertiser must pay $2 for every 1,000 impressions of its ad if a website publisher charges $2 CPM.

Understanding Cost Per Thousand (CPM)

Companies traditionally had only a few options to advertise their products and services—notably, through print, radio, and television. Over time, these options grew to include various types of online advertising. As such, there are a number of metrics to determine how well their advertising works. One of these is known as cost per thousand.

Cost per thousand is the most common method for pricing web ads in digital marketing. This method relies on impressions, which is a metric that counts the number of digital views or engagements for a particular advertisement. Impressions also are known as ad views. Advertisers pay website owners a set fee for every 1,000 impressions of an ad. An impression measures how many times an ad was displayed on a site, but it doesn't measure whether an ad was clicked on.

The click-through rate (CTR) measures whether an ad was clicked on, representing the percentage of people who saw the ad and acted on it. Advertisers frequently measure the success of a CPM campaign by its CTR. An advertisement that receives two clicks for every 100 impressions has a 2% CTR. But you can't measure an advertisement's success by CTR alone because an ad that a reader views but doesn't click still may have an impact.

Special Considerations

There can be confusion between two very important social media terms: impressions and views. The term impression refers to the presence of an ad or other content on a social media user's screen. A view, on the other hand, refers to the time a user engages with any digital content like a video.

The number of ad impressions can differ from the number of visitors to the website displaying the ad. An ad might receive placement in two locations on a website, such as a horizontal banner across the top of the page and a vertical side banner beside the page's text. The advertiser pays for two impressions per page view in this scenario.

Website publishers like CPM advertising because they're paid for just displaying ads. In some cases, a website needs robust traffic to make decent money from CPM ads because CPM rates are relatively low.

Cost Per Thousand (CPM) vs. Cost Per Click (CPC) vs. Cost Per Acquisition (CPA)

CPM represents one of several methods used to price website ads. This is where other metrics can come in handy. These include:

• Cost-per-click (CPC): An advertiser pays each time a website visitor clicks on the ad. Cost per click is also known as pay per click.
• Cost per acquisition (CPA): The advertiser pays each time a website visitor completes a desired action, such as a view, follow, post, or other similar transaction that allows the company to acquire a new customer. This metric is also called the cost per action.

Different pricing methods are more appropriate for some ad campaigns than others like the ones mentioned above. CPM makes the most sense for a campaign focused on heightening brand awareness or delivering a specific message. The click-through rate matters less in this case because the exposure from having a prominent ad on a high-traffic website helps promote a company's brand name or message, even if visitors don't click on the ad.

Rates for social media advertising tend to be higher and can vary depending on the platform. The following is a list of average social media advertising costs on different social media sites:

The Bottom Line

Critics of CPM often say there are challenges in accurately counting impressions. As such, there are some advertisers who question whether they're being charged fairly. Problems arise regarding duplicate views from the same visitor or from Internet bots visiting sites and skewing the total number of views. These ads should not be counted as impressions if they fail to load or incompletely load. Advertising or click fraud also can happen when an unscrupulous site owner uses automated scripts to send traffic to a website with the purpose of increasing the number of views.