What is Cost Per Thousand (CPM)?
Cost per thousand (CPM) is a marketing term referring to the cost of a media vehicle reaching 1,000 members of an audience. The M in CPM is the Roman numeral for 1,000.
How Does Cost Per Thousand (CPM) Work?
The formula for cost per thousand (CPM) is:
CPM = (Cost of 1 Unit of a Media Program) / (Size of Media Program's Audience) x 1,000
A media program unit can be one print ad, one commercial, or one of any sort of advertising medium. The media audience may include households, readers, users, or members of a demographic category.
Let's assume Company XYZ is considering purchasing a one-page print advertisement in the next issue of a national magazine for $5,000. The issue is expected to reach 10,000 readers. Using the formula above, we can calculate that Company XYZ's CPM would be:
CPM = ($5,000) / (10,000) x 1,000 = $500
This means that Company XYZ would effectively be paying $500 to advertise to 1,000 people (CPM = $500).
Why Does Cost Per Thousand (CPM) Matter?
Cost per thousand (CPM) is important because it is used to compare the cost effectiveness of different media vehicles. The vehicle with the lowest CPM is generally the most efficient because it requires less money to reach 1,000 audience members.
Many advertisers are paid based on the number of audience members reached (this is called paying per CPM). Television networks generally guarantee a specific audience size, or CPM, to advertisers who purchase commercials during certain times of the year. If the network's ratings do not meet expectations, the network will typically run free commercials to compensate for the difference.
It is important to understand that marketers do not rely solely on CPM when making media purchase decisions. Cheap advertising that does not effectively reach a target audience can be a waste of money. For this reason, the effectiveness and suitability of media programs and outlets can also influence purchase decisions of someone looking to advertise.