What is CPM?

AdTech Education Series - Fundamentals - CPM

  • 5 min read
Photo by Roman Wimmers on Unsplash

Our AdTech Education Series

We’re starting a new series of posts wherein we dive into the basics of AdTech so you can fully understand what everything means. We want to empower you to make the best decisions you can for your business. So sit back and join us as we kick off our new Educational series!

Some Preamble

We have a few terms we’re going to go over here before we get to what CPM is, why it matters and how to look at it so bear with us!

Bid Request

A bid request is the JSON object (you can think of it like a filled out form) that your DSP sends on your behalf to submit a bid to win an impression on a digital property. It contains all kinds of interesting information, but for purposes of this tutorial know it will contain who its from, how much its for and what the end advertisement looks like.

Win Notice

A win notice is an information endpoint call that tells your DSP (demand side platform - like AdverIQ) that you have won your bid for an impression. It does not however mean that your advertisement has shown.

Billing Notice

A billing notice only comes after a win notice and informs your DSP that the bid you won has been shown and the amount that you won it for (not necessarily what your bid was for, but we’ll leave that to a different article!).

What is an Impression?

An impression is an advertisement that has been shown on the screen of an end-user. An impression should only counted by your DSP after you’ve made a bid request, received a win notice and billing notice meaning you’ve bid, won and the advertisement has been shown.

Finally! What is CPM?

CPM - Cost Per Mille - Is the cost that you’ve paid for 1000 impressions. Outside of prenegotiated deals (PG/PMP) the overwhelming majority of Programmatic Advertising revolves around the concept of an impression. Your DSP may charge you for clicks or an accomplished goal but in the end they are billed for an impression (which remember is a bid request -> win notice -> billing notice).

Why should you care?

Ultimately CPM is the primary way that you will be charged for your advertising services so its critical to understand how that charge breaks down. We have done another series on tech fees, feel free to give that a read to understand the breakdown more.

Its critical for you to understand how and why you’re billed so you can understand what you can do to optimize your spend and who you spend it with.

Why CPM isn’t the be all and end all

I’m sure you’re thinking now that the lowest CPM you can accomplish is the goal because that means you got in front of the most eyes you could. Well yes and no. Read our article on reach. Heres a few scenarios, lets pretend you have $100 to spend. Keep in mind these CPM numbers are arbitrary, it depends on several factors outside of the scope of this article (target market, targeting options, third party data costs, channels, etc)

Scenario CPM Ads Served Clicks CTR Conversions Conversion Rate $ Per Conversion
A - Low CPM $2.5 40,000 100 0.1% 5 0.0125% $20
B - Average CPM $5 20,000 40 0.5% 10 0.05% $10
C - High CPM $7.5 13,333 133 1.0% 13 0.1% $7.70

Scenario Analysis

In this scenario you can see how much the numbers can fluctuate and it was set up to highlight a few things. There are several reasons to run an advertising campaign that is critical for you to understand to run the most effective campaign you can.

You may have launched a new business and want to get eyes on it, at which point your perhaps best served with low CPM options, perhaps you’re looking to get the highest amount of conversions you can at which point more premium inventory may yield you the best results. In most cases, just like Goldilocks, often the best results are not too hot or cold.

Key Takeaways

Now that you’ve understood what CPM is and why it matters you should think about what you want to accomplish so you can optimize your spend accordingly. The one part we left out of this that is critical is tech fees. Ensure you understand how that works so that you can ensure you’re getting the best value for your limited budget.

How does AdverIQ work?

At AdverIQ we don’t have a concept of a tuneable CPM. Optimization is time consuming, expensive and often a trial and error process that when you factor all the underlying labour and testing costs rarely gives you a strong ROI unless your volumes are tremendous. Thats why we ask you to tell us about your campaign, we leverage cutting edge ML and AI algorithms to automatically optimize your campaign to deliver you the best results because at the end of the day thats what matters. Furthermore we pass those savings onto you, so our tech fees are extremely low as a result.

Sources

OpenRTB Protocol - IAB - PDF