What does CPM stand for?

Online advertisers and publishers use a wide range of payment calculation methods to price their online marketing campaigns. In recent years, it has been calculated by advertisers that more than 30% of all online advertising transactions are being negotiated on a cost-per-impression basis. An impression is a single appearance of an advertisement on a web page. In order to count the impressions served as accurately as possible and prevent fraud, an ad server may exclude certain non-qualifying activities such as page-refreshes or other user actions from counting as impressions. This sometimes may lead to a bit of inconsistency of how impressions are calculated but in general the deviation is not very significant.

Cost Per Thousand Impressions (CPM) is most frequently used in advertising to represent the cost per thousand (M is the roman numeral of 1,000). When used in online advertising it relates to the cost per thousand ad impressions. 

Working on CPM means that you have to pay a fee for every 1,000 impressions of your ad. One impression equals one display of your banner. So for example, $3 CPM means that once your ad is displayed 1,000 times you will pay the publisher $3.

CPM = (Cost/ # of impressions) x 1,000

Its always useful to take various elements into account when buying online advertising on a CPM basis.

For example lets assume you have a budget of $1,000 and you are offered a rate of $5 CPM. With this rate your budget will buy you 200,000 ad impressions. Depending on the size and popularity of the site, the total number of monthly ad impressions and how many unique visitors the site gets per month, 200,000 impressions may be enough to get a good amount of exposure or maybe not even be enough to make a dent.

For example if the site serves 1,000,000 impressions per month then your 200,000 is 20% of their entire inventory which will get you a good amount of exposure. However if you are dealing with a larger site that serves 10,000,000 impressions per month then your 2% of their ad inventory will hardly make any impact.

The site's number of unique visitors is also very important to take into account. If a site has a lot of users who visit the site frequently on a monthly basis or refresh pages often during each session, it means that a lot of the impressions you are buying are actually generated by the same people. Displaying your ad to the same person over and over again is not very useful and diminishes the effectiveness of your campaign.

What's worse, it also means that you are wasting impressions that could have been more effective if the ad had been seen by someone else. That's why is always advisable to add a daily ad display cap per user or buy unique impressions when available. Sites with good ad servers can accommodate both of these requirements and this will help insure that you get the most out of your budget.

I will discuss other payment methods such as CPA, CPL & CPC in follow up posts over the next few days.