What is cost per thousand? In digital marketing and B2B sales lead generation, cost per thousand is a metric used to determine the price of an ad based on how many people saw it (impressions). The term originated in the pre-digital time when there was no technology to measure people’s actions to the advertisement. Nowadays clicks (cost per click, CPC) and purchases (cost per action, CPA) are also measured alongside impressions (CPM) to generate new business leads more effectively.
Cost per thousand definition
Whereas the cost per thousand definition is rather straightforward and simple, what is CPM then? The common abbreviation for cost per thousand is CPM, where M stands for mille, a Latin word for ‘thousand.’ The name ‘cost per mille’ must have come from the European media industry as both the French and Italians use ‘mille’ for ‘thousand.’ So now when we say ‘CPM,’ we mean ‘cost per thousand impressions or page views.’
Why Is CPM Important?
The term is important for online marketing and B2B lead generation because the cost of each customer view or impression is low. So marketers need a unit of measure to see tangible results of their media campaigns and make cost comparisons. For example, if a social media platform charges $5 CPM, this means that every 1,000 impressions of the promotion image will cost an advertiser $5. Using the CPM metric, marketers and advertisers get a precise idea of how much their B2B sales leads cost them.
How to calculate cost per thousand?
Learning how to calculate CPM is a no-brainer: You will need the gross cost per thousand impressions (the number of ad impressions / 1,000) and the total cost of your campaign.
|CPM = Total Marketing Campaign Cost / (Total Number of Impressions / 1,000)|
e.g. If a LinkedIn image ad campaign costs $10,000 and gets 1M advertisement impressions, the CPM will be $10.
To allocate their advertising budgets more effectively, marketers often calculate CPM before starting a paid marketing campaign. For example, a business can spend $10,000 on advertising, and the marketing team decides that 500,000 impressions is a good result for that campaign. Then CPM will be $20. If the marketing campaign gets more impressions from an advertising platform, CPM will get lower. Thus, this metric enables advertisers and marketers to calculate the potential cost of their marketing efforts.
At the same time, low CPM is not universally good news. It needs other metrics for more precise results. If the conversion rate is low, then low CPM is not an achievement. Placing an ad on the web does not necessarily mean that all impressions are valid. Some users don’t engage with an ad long enough to get the meaning of it; others scroll past it or skip a video/audio ad on a YouTube podcast; are advertisers required to pay for such useless impressions then?
There is another metric, specifically for effective cost per thousand called eCPM, that calculates clicks rather than impressions. The formula is calculated as follows:
|eCPM = (CPC x Number of Clicks) / (Impressions / 1,000)|
e.g., an advertising campaign that garnered 10M impressions and 10,000 clicks (CPC $2) will have eCPM calculated like this: ($2 x 10,000) / (10,000,000 / 1,000) = $2.
There is more: vCPM measures viewable cost per thousand impressions. For example, Google ads has embedded trackers that observe the user interaction on the web page and determine the number of actual customer views. There are several formulas to calculate eCPM.
The metrics used to measure the effectiveness of a digital ad campaign largely depend on the purposes the marketers and advertisers have for it. CPM works well for improving brand recognition or spreading a specific message since just seeing an ad on a high-traffic online platform can be enough.
However, niche businesses will very unlikely benefit from sheer impressions without actions. If specific conversions are required, then the click-through rate (CTR) and cost per click (CPC) will tell advertisers more about the success of an ad campaign. There are many websites offering online calculators for cost per thousand, click-through rate, etc.
Maximize advertising cost-benefit
CPM calculation doesn’t look difficult. However, deciding which metric to use in each case and how to compare metrics against each other requires a lot of marketing experience. Even more, the numbers you get should be interpreted correctly so that your business’ sales funnel and lead generation strategies can be managed in an excellent way. At Belkins, we help businesses by thoroughly analyzing the customer acquisition path.