When organizing a media or contextual advertising campaign on the web, any advertiser calculates its approximate budget. For the customer of an advertising campaign, it is important to see how the funds for its implementation are distributed, whether the money is spent for its intended purpose and with what effectiveness they are used. The calculation of the effectiveness of an advertising product in media planning is based on several indicators, one of which is the CPM index. What is this indicator, how to use it - we will find out below.
CPM - why you need it
What is CPM in advertising has been known since the last century. The module was used in all advertising campaigns that took place in the media. Publishing houses, television and radio channels still use this indicator to calculate the cost of advertising. CPM is used when it comes to the price of one ad impression not to single recipients, but to a thousand potential buyers. At the same time, this term was introduced into circulation. The owners of advertising sites could only operate with their circulation and thematic focus, so the CPM indicator was determined, advertising, taking into account this value, was effective.
CPM definition
A simple definition of CPM is cost per thousand. The name of the module comes from the English words Cost-Per-Thousand, where M is a Roman numeral meaning 1000. Thus, when asked what CPM is, we can answer that this is the price per thousand ad impressions. The more times an advertisement appears on the pages of newspapers and magazines, the more often it sounds on the radio or flashes on a television channel, the higher this coefficient is.
CPM calculation in online advertising campaigns
On the Internet, the role of an advertisement is usually played by banners - those very annoying pop-up windows that users do not like so much and which bring money to the owner of advertising sites. The more popular the site, the more users view this page of the Internet, the more expensive advertising on this site will cost the customer.
Advertisers are interested in the largest possible number of users who have seen a given banner. Therefore, what is CPM can be shown mathematically in this way:
CPM=(total cost of an advertising order)/(planned number of banner views per day)1000.
Now it's clear what CPM is. In advertising, this is one of the most important indicators. The advertiser can calculate how much money the site owner needs to pay in order for the information to be shown to one thousand network users.
This calculation can be visually demonstrated using a simple example. The cost of placing one banner on the site of a portal is, for example, $ 400 per week, the statistics of this web page show that per weekthe site is viewed by about 10 thousand users. So a simple calculation gives the value:
CPM=$400/10,0001000=$4 per thousand ad impressions.
Advertisers should understand that a simple display of a banner on a thematic site is mostly informative. There is no guarantee that all ten thousand people visiting the page will definitely click on the banner. Whether the visitor wants to follow the link or not depends only on the attractiveness of the banner itself and the information that is placed on it. Each site will provide all the data of interest for calculating the CPM parameter. That it is beneficial to the owner of the site, you can understand. But advertising, its quality and interest for the end user are the tasks of the customer himself.
CTR Auxiliary Module, Calculation Methods
To reduce costs, one more indicator should be taken into account - the CTR index. The name also came from the English language and completely sounds like a click-through rate - an indicator of click-through rate. CTR shows how many people clicked on the banner and went to the page of the advertising customer. This module directly depends on the correctness of the chosen site, because the more appropriate and necessary the advertisement on the site looks, the more likely it is that the site visitor will be interested in the information and click on the banner. The method for calculating this indicator looks like this:
CTR=(number of users who clicked on the banner)/(planned number of banner views per day) 100%.
For example, if out of 20thousand people who saw the advertisement followed the link 800 users, then the CTR is 800/20,000100=4%, which is higher than the minimum allowable value.
Experimentally proven that the minimum CTR is 3-5%. If less, then the cost per potential customer will exceed the expected profit, and advertising will be considered ineffective.
Using indices
CPM can be used when choosing a narrower target audience. For example, when ordering a banner placement, the site-platform provides the advertiser with information about the age, gender, place of residence, hobbies of all registered site visitors. Thus, the desired banner appears only for those users for whom this advertising product was designed. The advertising campaign budget is spent more economically and more efficiently.
You should also take into account the activity of regular users. The more often the same visitor sees the same advertising product, the more often money is debited from advertisers, but the customer does not get more customers from this. Therefore, a competent calculation of the CPM and CTR indices, combined with a deep analysis of the information provided by this advertising platform, should bring the desired result to the customer.
Another thing to consider at the beginning of an advertising campaign. Payment can be made either by CPM or by CTR. In other words, the customer must understand the essence of banner advertising according to the CPM module - that this is not a payment for user clicks, but onlyfor showing a promotional product
Summing up
When asked what CPM is, one can answer that this parameter is one of the most important when analyzing the effectiveness of an advertisement, and is also taken into account when calculating the budget of an advertising campaign. The number of expected contacts of a potential consumer with advertising information and the cost of placing a banner on several sites with a similar thematic focus are also taken into account. Taking into account these parameters, you can calculate the effectiveness of a particular advertising platform and successfully master the advertising budget.
