What does CPM mean?
So for example if you purchase 1,000,000 ad impressions at £3 CPM, as a result you would pay £3,000. This is because for every £3 you spend, you are getting 1,000 ad impressions.
Note: CPM online advertising is the most advantageous type of deal for website owners in most cases. This is because you are simply selling space, and it doesn’t matter how it performs.
Fun Fact: CPM is often reported as standing for Cost Per Mille, however we at The Online Advertising Guide think we might have accidentally made up this definition on an early version of this site. Please let us know if you know of a different origins of the term.
Consequently it makes sense to think of eCPM as the price per kilo of the online advertising world.
CPM banner advertising was launched in 1995. This was the same year the Internet Advertising Council (now the IAB) launched. A year later, the first major ad server (DART) went live, and within these two short years, the internet changed substantially.
This fairly easy to understand ad pricing model coupled with easily scale-able ad serving technology meant everyone could get in on the online advertising game. CPM advertising forecasting only depends on inventory levels. Consequently this meant website owners could now predict how much money they could make fairly easily.
Of course they weren’t taking into account problems like fill rate or latency, which is why overestimations of potential profitability were commonplace at the time.
Which is probably what led to the great dot-com crash, but that’s another story.
The CPM equation is:
Click to enlarge
CPM = (Ad Spend / Ad Impressions) x 1000
- Ad Spend multiplied by 1000. Then divide the result by Ad Impressions.
- Ad Spend divided by Ad Impressions. Then multiply the result by 1000.
- Weird version: CTR multiplied by CPC multiplied by 1,000.
To work out the eCPM of any ad campaign, simply take the total amount paid and divide it by the amount of ad impressions used, then multiply the whole thing by 1,000. This is the same equation as used to work out a CPM. Use this figure to work out the side by side value of different ad campaigns.
Note: Due to this ad pricing model, 1,000 ad impressions is essentially considered to be one unit of advertising. It’s a convenient measure, as one click in 1,000 ad impressions comes to a CTR of 0.1% which is the overall display advertising average of the internet.
Average CPM Rate
The CPM average rate in 2015 was around $3 (about £2). This means between £1-£6 (approx. $1.50 to $10) is probably a reasonable range for display ads.
Not to be confused with
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Author: Justin Driskill
Justin is the founder of The Online Advertising Guide and a freelance Digital Projects Manager.