CPM stands for cost per mille, wherein ‘mille’ is the Latin word for thousand. Verily, CPM is a pricing model based on ad impressions where an advertiser pays a certain amount for each thousandth impression of their ad. This cost is usually based on a CPM rate, which outlines the cost of each CPM ad placement.
How Does CPM Work?
CPM rates can vary depending on the placement of the mobile ad, the type of ad, and the target audience. For example, an app that gets a lot of traffic from a certain demographic may charge more for CPM ads that target that specific demographic.
The CPM model is a popular pricing model for online advertising because it is a simple way to price ad space. However, in recent years it has lost some popularity in favor of models such as CPI (Cost per Install) and CPE (Cost per Event) due to their ability to guarantee results per investment. CPM is used when the advertising intent is focused on brand awareness more than post-install engagements.
That being said, millions of advertisers are still paying for their ads using the CPM model as it is mainly adopted by the largest publishers in the world, namely Google Ads and Meta Ads(Facebook&Instagram).
How is CPM Calculated?
As a measurement tool, CPM can be used to calculate the effectiveness of a mobile marketing campaign in terms of volume. Essentially, it calculates the cost of reaching 1000 viewing engagements for advertisers. CPM is a useful metric for companies to use when planning their advertising budget as it allows them to see how much they are paying for each impression their ad receives. It is also a good metric for comparing the cost of advertising on different platforms.
The CPM formula is as follows: [(Cost to Advertiser / Total impressions gained) x 1000]
CPM calculators are often used to assess how effective or efficient ad campaigns have been. For instance, an ad that has cost an advertiser $100 and brought in 50,000 impressions will have a CPM of $2. Meaning the advertiser will have paid $2 for every 1000 ad views. The lower the CPM, the more efficiently the advertiser is in achieving 1000 impressions.
Normally, 3rd party ad sources, such as AppSamurai, offer the option to set a fixed CPM rate to app owners so that the former will know how much they will need to spend to achieve 1000 impressions. The rate is calculated based on historical data regarding the app’s vertical and the campaign’s intended geo(s).
Why Use a CPM Pricing Model?
There are a few reasons why a CPM model can be beneficial for advertisers:
It’s a great way to reach a large audience.
With CPM advertising, you’re not paying for clicks or conversions, you’re simply paying for exposure. This means that you can reach a large number of people with your ad, even if they don’t all click on it.
It’s a cost-effective way to advertise.
CPM advertising is usually cheaper than other forms of online advertising pricing models, such as CPIs, also known as Pay-Per-Click (PPC) or CPAs. The reason for this is that the objective of CPM advertising is to promote awareness, rather than the aims of other models which are further along the customer journey.
It’s a flexible pricing model.
With CPM advertising, you can set your own budget and only pay for the impressions you need. There’s no need to worry about overspending or under-delivering.
It’s a predictable pricing model.
With CPM advertising, you know exactly how much you’ll be spending on your ad campaign upfront. There are no surprises or hidden costs.
If you’re looking for a cost-effective way to reach a large audience, then a CPM model is definitely worth considering.
Drawbacks of CPM Advertising
Despite being one of the most common methods of mobile advertising, there are a few potential drawbacks to using a CPM model when advertising. They are as follows:
CPM models can Reduce ROI.
If you’re not careful, you can easily spend more money than you intended on your advertising campaign. This is because you’re paying for each impression, regardless of whether or not it leads to an in-app purchase. Hence overspending can lead to a reduction in your return on investment (ROI).
CPM models can be slow to produce results.
Since you’re paying for each 1000th impression, it can take a while to see results from your campaign. This is especially true if you’re targeting a particularly large audience.
CPM models do not measure clicks or actions.
This model does not measure the in-app events that really count, like subscriptions and purchases. CPM targeting simply values efficient volume over all else and hence, does not give any weightage to placements that bring revenue-generating traffic to your app.
A CPM model’s success depends on the app’s industry.
Some industries are better suited for other advertising models. For example, businesses that sell products or services with a long sales cycle might not see as much success with a CPM model.
Other Important Metrics for Mobile User Acquisition
CPM advertising focuses mainly on impressions and metrics that have to do with the consumer awareness stage; however, in terms of user acquisition there are other metrics vital to ensuring campaign optimization and success. Even if you decide to run a CPM campaign, it is important that you constantly monitor these metrics as well:
Conversion rate:
This is the percentage of people who download your app and then use it; it is calculated by dividing the total number of installs by the total number of clicks or impressions, depending on the intention of the conversion rate. This metric is important because it will give you an idea of how effective your acquisition strategy is.
Retention rate:
This is the percentage of people who continue to use your app after they have downloaded it. It is commonly calculated based on the retention rate after 7-15 days and used as a key performance metric (KPI) to judge the quality of an ad source’s traffic. This metric is important because it will give you an idea of how well your app is retaining users and the quality of the traffic sources used.
Engagement rate:
This is the percentage of people who use your app on a daily basis. This metric is important because it will paint a picture of how optimized your app’s user experience (UX) is and will thus give you an idea of how engaged your users are with your app. A low engagement rate can mean many things, perhaps the advertisement is not communicating the app’s intended experience or the UX has technical bugs.
Referral rate:
This is the percentage of people who download your app after being referred, whether by a separate media channel or through word of mouth from family or friends. This metric is important because it will give you an understanding of how viral your app is.
Keep track of these metrics and adjust your mobile user acquisition strategy accordingly to ensure that you are getting the most bang for your buck.
Conclusion
CPM advertising can be a great way to get your message in front of a large audience, and it can be a cost-effective way to reach your target market. However, it is important to understand how CPM advertising works before you launch a campaign. This guide should help you get started with your CPM advertising campaign and make the most of your investment.
AppSamurai is a multi-award-winning mobile advertising platform that can help guide app owners to achieve their user acquisition goals regardless of the campaign model, whether CPM, CPI, or CPA. Sign up now and a dedicated account manager will reach out to you and assist you in realizing your mobile marketing goals.