What Is CPM and How It Breaks Down the Cost of Online Advertising

Learn What CPM Is and How It's Used in Online Budgeting

Getty Images

If you’re looking to buy advertising space online, you will quickly run into the term CPM. It’s a term used by the industry to talk about costs for “ad impressions,” and it is by far the most common unit of measurement used in digital advertising. It’s also the most common way to buy and sell digital advertising space.

What Does CPM Mean?

CPM stands for Cost Per Mille, and is another way of saying Cost Per Thousand.

In this case, 1,000 advertisement impressions on a website. It should not be confused for other similar, but different, terms including CPC (Cost Per Click) and CPA (Cost Per Action/Acquisition).

What Is an Advertisement Impression?

Sometimes known as a view or an ad view, one ad impression is the equivalent to an ad server being called in response to a page request from a user’s browser. That’s it, and that’s all. Some people mistakenly think that ad impressions are ads that were shown to a user (whether they notice it or not), on a website or other online medium. This is factually incorrect.

Sadly, this also means that ad impression statistics are often incorrect, or downright fraudulent. Up to 15 percent of the time, the ads served are incorrect. Then, there are ad impressions from bot traffic, (a bot is an automated piece of software that can be used to boost traffic numbers or SPAM people) which means no physical user ever had a chance to see the ad.

Up to 60 percent of ad traffic comes from these bots. And finally, there is ad impression fraud. In this case, unscrupulous users hide ads behind other ads, which tricks the ad networks into ads with higher CPMs to the site. This also boosts the ad impression numbers, costing advertisers even more.

You can read more about this in this excellent article by Reid Tatoris.

How Does CPM Breakdown the Cost of Advertising on Your Website?

So, let’s say you have a website, and you want to use it to serve ads and make money month after month. Well, you’re going to need to sit down and figure out what kind of monthly income you will be comfortable with. If your website is new, and has relatively little traffic, you are not going to earn a lot of money, so your CPM will be very low. If your website has high traffic, the CPM will be higher.

There are two different kinds of CPM rates—fixed, and variable. Fixed rates are easier to work with as you have a definite value to put against the ad impressions generated. Variable CPMs are a little more difficult to work with, and these rates will differ based on your website’s topic, the country you are in, the advertiser, and so on.

Let’s do some quick math. You have a website and it is average 40,000 visitors per month, with a total of 120,000 page views per month. What is your website worth to you?

Well, on a CPM of $5 (which is slightly above the average for 2017), you would calculate it this way:

120,000 / 1,000 = 120

120 x CPM $5 = $600

Multiple that by 12 and you’re looking at a website with a value of $7,200 in ad revenue per year.

When you consider the many millions of page views some websites serve every month, you can see just how profitable CPM marketing can be to some sites. Indeed, the most successful YouTube contributors make millions of dollars every year from just a portion of the ad revenue that YouTube collects from their pages.

How and Where to Get CPM Advertising Traffic

If you have read all of the above and are interested in generating CPM revenue through your website, the next logical question is “where do I start?”

You are not going to be able to just approach companies and ask them to start placing ads on your site. There are websites and businesses built around serving traffic to sites like yours, and they are very easy to get started with.

Some of the best ones to start out with include:

Create accounts with a few of these, and experiment. Once you find a program that complements your website and brings in good revenue, stick with it.