What Does CPM Mean in Internet Advertising?

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Advertising methods may have changed, but pricing models have remained similar.
Advertising methods may have changed, but pricing models have remained similar. (Image: Jupiterimages/Photos.com/Getty Images)

Although the mediums have changed, advertising has been around for centuries. From vintage ads for tonics and powders to flash-based Internet display ads for travel and insurance, the goal is still the same: to get a company's name in front of consumers. Despite changing technologies, pricing models for advertising have remained similar. CPM is one example.

Definition of CPM

CPM, an advertising pricing model, stands for “cost per thousand” impressions. So, why the “M” and not a “T”? The acronym originally stood for “cost per mille;” mille is the Latin word for thousand. If you are a homeowner, mille may also sound familiar to you; it is also a term used by municipalities to figure out local tax rates.

How CPM Works

CPM has been used in traditional marketing for decades. The cost of an ad is determined by how many approximate impressions, or views, the ad receives. More simply, an impression is when someone sees the ad. For example, a front page ad in a newspaper with a circulation of 10,000 may receive 20,000 impressions since newspapers are typically shared. In newspapers, circulation numbers are used to determine the advertisement's cost, while in television, it is viewers, and on radio, listeners. When online advertising began, CPM was a perfect formula; display ads could be priced based on the amount of views a page received.

CPM Pricing for Online Advertising

In the CPM pricing model, a price is set per one thousand impressions. Thus, if an online banner ad is set at $10 CPM and the website gets 10,000 views, the total cost for the advertiser would be $100. Individual advertisers create their own CPM price point; it varies from industry to industry. Unlike traditional media where prices were fixed based on estimated reach, in Internet marketing, the total ad cost can be tabulated by actual data collected from website analytics.

CPM Versus CPC

CPM was once more popular for online advertising. In the mid-2000s, the trend began moving toward a performance model, or cost-per-click (CPC). This trend coincides with Google's entry into selling online ads. CPC is based on actual conversions, meaning that the user clicked on the ad. This direct response has an easier-to-measure return-on-investment (ROI) than impressions alone. However, impressions can be an important part of an advertising strategy if your company is looking for visibility.

Examples of CPM Advertising

Google AdWords is one of the leading advertising platforms for Internet markers. While the CPC model is used more widely on this platform, marketers can also choose the CPM model. On AdWords, users choose to bid manually, choosing their own maximum bid rather than using Google's automated process, for impressions by setting a maximum bid per 1,000 impressions. Facebook Ads also allows marketers to choose between CPC and CPM. Affiliate marketing programs, or Internet marketing programs allowing websites to advertise a company's products for a commission on their own websites, will also use CPM to reward affiliates for impressions earned. Finally, independent websites, such as blogs, magazines and newspapers, will sell ad space based on CPM. Local newspapers, for instance, may offer ads to local businesses and charge the business based on the number of views the ad receives.

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