CPM explained: Calculation, application and advantages

• #Influencer Marketing
• #Marketing

Have you ever wondered how much it costs to reach 1000 people with your ad? This is where CPM, also known as cost per thousand contacts, comes in. The CPM is one of the most important metrics in the advertising world and it gives you exactly this information. It is a measure of how efficiently you are spending your advertising budget. Sounds exciting, doesn’t it? Imagine you want to promote your products and you have a limited budget. CPM helps you optimise that budget by telling you how much you need to pay per 1000 people reached. Especially in influencer marketing, where budgets and reach can vary widely, CPM is an essential tool for evaluating the efficiency of your spend. Learn more about CPM in the next 10 minutes.

Why should you care about the CPM?

Quite simply, CPM helps you better understand and control the cost of your advertising campaigns. Imagine you have a limited budget and you want to make the most of it. CPM shows you how much you are paying per 1000 people reached and helps you optimise your spend. Especially in influencer marketing, where budget and reach often vary, CPM is an indispensable tool.

What is CPM?

The thousand-contact price is the amount you need to spend to achieve 1000 visual or audio contacts with your ad. Each contact is counted multiple times, regardless of whether it is the same person or not. This means that if someone sees or hears your advert more than once, each of these contacts will be counted separately.

A simple calculation example: Let’s say you place an ad that costs 100,000 Euros and reaches 500,000 people. Your CPM would then be 100,000 Euros divided by 500, multiplied by 1000 – i.e. 200 Euros. So you pay 200 Euros to reach 1000 contacts.

Why is this relevant to influencer marketing?

Influencers often have highly engaged, but sometimes smaller audiences than traditional media. CPM helps you analyse the cost per 1000 followers reached and decide which influencer is worth your investment.

What is the 1000-user price compared to the thousand-contact price?

Similarities

Both are key marketing metrics used to quantify the cost of advertising. They help advertisers evaluate the efficiency and reach of their campaigns.

Differences

1. CPT – Cost Per Thousand:

The CPT measures the cost of reaching 1000 different people in the target audience at least once. Each person is only counted once, regardless of how many times they see the ad. This metric is particularly useful for campaigns that aim for high reach and high uniqueness.

2. CPM – Cost Per Mille:

The CPM measures the cost of achieving 1000 visual or audio contacts in the target audience. Multiple contacts are taken into account so that a person can be counted more than once. This metric is ideal for campaigns that rely on repetition and frequency of contact to achieve greater retention of the message.

Examples

Cost per Thousand

• Brand awareness campaigns: The aim is to reach a large number of unique people in order to increase brand awareness. For example, when a new product is launched and many different people need to know about it.
• Email marketing: Cost per 1000 unique recipients to evaluate the effectiveness of the campaign.

Cost per Mille

• Retargeting campaigns: The aim is to reach the same people several times in order to convert them. For example, if users who have visited your own website are to be addressed again in order to persuade them to make a purchase decision.
• TV and radio advertising: Frequent repetition of the message in order to achieve a stronger anchoring of the brand in the consumer’s memory.

What is the right marketing strategy?

1. Outreach strategy (CPT):

Imagine you want to reach as many people as possible on a fixed budget. This is where the CPT comes in. This strategy is perfect for launches or campaigns where the aim is to increase general awareness of a product or brand. The focus is on getting the message in front of as many unique users as possible to generate widespread awareness.

2. Frequency strategy (CPM):

This contrasts with the frequency strategy, which uses the CPM. The aim is to reach the same target group several times in order to consolidate and reinforce the advertising message. This strategy is particularly important for products and services that require repeated exposure to build trust and reinforce purchase intent. Reaching the target audience multiple times increases the likelihood that the message will stick and trigger the desired action.

Does CPM help with budget planning?

The CPM is an indispensable tool for budget planning and precisely addressing your target group. If you know the cost per 1000 people or contacts reached, you can allocate your budget more efficiently and select the channels with the greatest impact. Questions such as ‘How much should a contact cost?’ or ‘Which medium offers the best reach?’ can be answered more easily.

Is the strategy efficient?

CPM analysis helps you maximise the efficiency of your advertising campaigns. By comparing the CPMs of different campaigns and channels, you can see which activities are delivering the best ROI. This allows you to identify the most efficient ways of reaching your target audience and placing your advertising messages. Doesn’t that sound like a smart way to optimise your marketing budget?

How do you calculate the CPM?

Formulas and calculation examples:

Calculating the CPM is a simple but powerful method of measuring the efficiency of your advertising campaign. The basic formula is:

Let’s assume you place an advert for 5000 euros and reach 200,000 contacts. The CPM would then be calculated as follows:

This means that you pay 25 euros to reach 1000 contacts.

Unweighted calculation

In the unweighted calculation of the CPM, the basic formula mentioned above is simply applied. All contacts are counted equally, regardless of whether they belong to the relevant target group or not.

Example 1)

Imagine you place an online advert that costs 5000 euros and achieves 250,000 impressions. The unweighted CPM is calculated as follows:

This means that it costs 20 euros to achieve 1000 impressions.

Weighted calculation

The weighted calculation, on the other hand, takes into account the relevance of the target group.

Example 2) 

Let’s take a magazine ad that costs €10,000 and reaches 100,000 readers per issue. If 60% of the readers belong to the relevant target group and there is an internal overlap of 30%, the weighted CPM is calculated as follows:

This means that it costs around 238 euros to reach 1000 relevant readers.

What are the advantages and disadvantages of the CPM?

Advantages:

1. Comparability: The CPM makes it possible to compare different advertising measures and channels directly with each other, as it standardises the costs per 1000 contacts.
2. Scalability: It helps with the scaling of campaigns, as you can see exactly how much it costs to reach a larger or smaller target group.
3. Planning security: With a fixed CPM, advertisers can better plan their budgets and accurately predict the expected reach and costs.

Disadvantages:

1. Scatter loss: The CPM does not take into account the quality of the contacts reached. It can happen that many of the contacts reached do not belong to the target group and therefore the advertising budget is not optimally utilised.
2. Qualitative vs. quantitative aspects: The focus is on the number of contacts reached and not on the quality of these contacts. A high reach does not necessarily mean that the message reaches the right people or that a high conversion rate is achieved.

Current trends and developments

What changes are in CPM prices?

The prices for the CPM can vary greatly, influenced by several factors such as the platform, the target group and the advertising format. For example, social media platforms such as Instagram and TikTok often have higher CPM prices compared to traditional media thanks to their high user numbers and engagement.

What developments?

Technological advances play a decisive role in the development of the CPM. Algorithms for target group segmentation and more precise targeting help to minimise wastage and increase the efficiency of advertising. Programmatic advertising, where ads are displayed in real time based on user behaviour, has also influenced CPM by offering the opportunity to address more specific and relevant target groups.

Successful examples with CPM applications

Intel has successfully used TKP to sponsor gaming tournaments. Through the strategic placement of advertising during the events, Intel was able to achieve high visibility in the gaming community.

→ Increased brand presence in the gaming community and increased the number of participants at events.

Samsung used CPM for the launch of new smartphones. Through targeted advertising campaigns on social media and tech blogs, Samsung was able to keep the costs per 1000 contacts reached low while achieving a high engagement rate.

→ Increased sales figures through targeted, cost-effective advertising campaigns.

Red Bull uses CPM for large-scale marketing campaigns, particularly for extreme sports events and streaming partnerships. By calculating CPM, Red Bull was able to maximise ROI by targeting advertising to the most relevant audiences.

→ Significant increase in brand awareness and engagement through strategic event placements.

Conclusion

Cost per thousand contacts (CPM) is a key marketing metric that helps you maximise the efficiency of your advertising budget. By analysing CPM, you can compare the cost of different advertising activities and identify which channels and campaigns deliver the best ROI. For influencer marketing in particular, CPM provides valuable insight into optimising the reach and frequency of your messages. With a solid understanding of CPM, you can plan and execute your marketing strategies with precision, and ultimately increase the impact of your advertising.