Published on: 30 Nov 2023
Reading time: 5 minutes
Building creative rich media ads with captivating content is an important part of any digital marketing campaign. However, to make the most of a company’s advertising budget, it's crucial to track the success of marketing campaigns as well through key performance indicators (KPIs). These performance metrics or KPIs help businesses gauge the effectiveness of their digital marketing efforts, helping them gain a better understanding of how to allocate their advertising revenue. By analyzing various performance metrics, businesses can allocate their budget where it matters most, optimizing ad spend and maximizing ROAS.
Different digital advertising platforms offer advertisers various cost models to budget and run their campaigns, so they can maximize the returns on their ad spends. Ad spend refers to the costs accrued by advertisers for acquiring new customers, increasing their reach, or achieving other marketing goals through paid ads. It is important for brands to understand how they can measure the performance of their digital ad campaigns to get increased returns on ad spend (ROAS).
One commonly used cost model for ad campaigns in digital marketing is CPM (Cost per Mille). In marketing, the definition of CPM is derived from the acronym, “Cost per Mille”, with the Latin word “mille” translating to ‘a thousand’. So, in advertising, the meaning of CPM translates to cost per thousand.
In digital marketing, CPM essentially measures the cost per thousand ad impressions for an ad unit. Advertisers can usually set a particular CPM bid while setting up their ad campaign and use it to calculate the ROAS. Lower cost per thousand values indicate more cost-effective campaigns, as advertisers are paying less to reach a larger audience base. However, a higher CPM could mean a more targeted approach to ensuring that the ad campaign reaches only the right audience.
Impressions, in this context, refer to the number of times an ad is displayed to or viewed by users within the digital environment, such as on websites or mobile apps. Impressions are valuable because they provide insights into how many times an ad was seen, which helps analyze the campaign’s reach and exposure. Higher impressions suggest broader exposure. If CPM has not already been determined, advertisers can also calculate impressions from CPM with the formula:
Impressions = (Total Cost of Campaign / CPM) × 1,000.
Thus, CPM marketing proves to be particularly useful for assessing the reach and exposure of an ad campaign. Advertisers calculate CPM to determine how much they’re spending to get their campaigns in front of a thousand potential viewers.
In digital marketing, the formula to calculate CPM is pretty straightforward and involves certain steps. Here is how to calculate CPM for a digital ad campaign: -
CPM = (Total Cost of Campaign / Total Impressions) x 1,000
Detailed steps to calculate CPM from impressions involve:
Setting a Budget: Advertisers usually begin by establishing an advertising budget for a particular digital ad campaign.
Identifying Target Audience: The next step involves defining the intended target audience or the total number of impressions to be obtained through the campaign.
Calculate CPM by Applying the Formula: Finally, advertisers can plug the numbers into the CPM formula to calculate the cost per thousand impressions.
In digital marketing, CPM campaigns are indispensable for advertisers and brands. They contribute to the success of the advertising and marketing efforts in many ways. Some of the reasons why CPM marketing is important are:
Determining Cost Effectiveness of Various Media Resources: CPM allows advertisers to compare the cost-effectiveness of different advertising channels or media resources against the efficacy of the different channels.
Strategizing for Future Campaigns: The insights generated from CPM assist in planning marketing campaigns in the future. For instance, if previous CPM campaigns indicate that video ads are more cost-effective, businesses can prioritize video content in their next campaign.
Budget-Friendly Campaigns: In comparison to other forms of metrics such as CPC, CPM is one of the most preferred among advertisers because of its cost-effectiveness. In CPM, advertisers only pay a certain cost per thousand impressions that are generated, thus, giving them better control over their ad spend.
Reduced Focus on Keywords: Another benefit of CPM is that it does not rely heavily on keyword optimization. Instead, it focuses on targeting customized audience groups. This reduces the complexity of campaign management and frees advertisers from keyword research and bidding.
Extremely Effective for Creating Brand Awareness and Credibility: CPM campaigns excel at delivering high volumes of ad impressions, which makes them highly effective for building brand awareness. Further, consistent visibility to the target audience can increase brand credibility as well over time.
Easier Lead Generation: Since CPM campaigns help put brands in front of potential customers, meaning that CPM advertising can also be effective for generating better quality leads. For better results, advertisers can also make use of a reliable ad platform to build compelling ad experiences to engage the audience.
Increased Visibility: With CPM, businesses are able to maintain a continuous and prominent presence in the digital space. With higher visibility, businesses become more recognizable, reinforcing their image in the minds of the target audience.
Reach the Right Audience: CPM supports precise targeting ensuring you only pay for relevant impressions.
Easier Performance Tracking: Performance tracking is simplified through CPM as it provides clear metrics like impressions and CPM rates.
In digital marketing, CPM is vital. However, while it’s essential for measuring the cost efficiency of ad campaigns, CPM alone does not provide a complete overview of a campaign’s performance.
To gain a comprehensive understanding of ad campaign performance, advertisers should track additional KPIs. Apart from CPM, other marketing definitions that one should be aware of include:
Cost Per Acquisition (CPA): Cost per acquisition or CPA measures the cost of acquiring a new customer or lead through an ad campaign. This metric is used to determine revenue generated from an ad campaign.
Cost Per Click (CPC): Unlike CPA or CPM, CPC measures the actual engagement of the ad campaigns. It is used to measure how much an advertiser pays for each click on their advertisement.
Click-Through Rate (CTR): Click-through rate or CTR is an important metric that measures how many times users click on the ad placement through impressions.
Return on Investment (ROI): Return on investment or ROI measures the amount of profits or revenue earned in proportion to the initial cost or investment incurred in relation to digital advertising campaigns.
Digital marketing can be a highly effective tool for brands, but it is crucial to factor in the cost aspect of every campaign to ensure value for money. A good way to determine what CPM is best for your brand is by monitoring ROAS across multiple platforms, so you can make adjustments in real-time and adjust costs accordingly.
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