The advertising term CPM, stands for “cost per thousand impressions,” which is a measurement of how much money it costs you to reach 1,000 readers, viewers, visitors or listeners. The formula for calculating CPM is simple, using the information from an advertising vehicle’s media kit. Using the CPM of potential advertising choices is a helpful way to make comparisons between different advertising companies’ capabilities and their cost level.
CPM helps you compare advertising choices with different reaches. For example, you can use the CPM to compare a newspaper with a circulation of 100,000, a radio station with 500,000 listeners and a website with 2 million visitors. If you use only the actual cost of an ad to compare these three advertising options, you may end up paying more to reach each potential customer even if you buy the least-expensive ad. CPM allows you to quickly compare between different advertising media.
How to Calculate CPM
To calculate CPM, divide the total potential reach/circulation number of readers, viewers, listeners or visitors by thousands. Then, divide the resulting number by the total advertising cost. For example, if an ad costs $4,000 in a newspaper with a circulation of 100,000, your cost to reach 1,000 readers is $40, since 100,000 / 1,000 = 100 and $4,000 / 100 = $40. If a radio ad costs $250 and the station has 50,000 listeners, the CPM for that ad is $5. A $2,000 ad in a magazine with 20,000 readers may seem cheaper than the $4,000 newspaper ad, but by spending $100 to reach 1,000 readers, you are spending more money to reach each potential customer with the magazine.
You shouldn’t use CPM by itself if you want the most-accurate comparison of different advertising choices. For example, if your target audience is women, then you must calculate the % of women readers from your advertising media. If you buy a spot on a radio, you will be paying to have your ads broadcast to many men and children. When you calculate CPM, look at advertising media kits to eliminate those audience members who aren’t your potential customers, then calculate your CPM from the remaining number. Most common mistake of an amateur advertising professional is to assume that their advertising reach will be high based on simply looking at the majority reach level of the target audience.
CPM & Audience Statistic
Another way to ensure you calculate an accurate CPM is to examine how the medium is delivered. Some magazines or periodicals are based on subscriptions, while most magazines are freely distributed across different locations. Periodicals that are mailed or purchased provide more accurate circulation figures than those placed in racks and made available for free. If you buy run-of-schedule ads on TV and radio stations, your ads may run at times when few people are listening or viewing or when few of your target customers are tuned in. When looking at website traffic statistics, look for the number of unique visitors a site has, rather than how many hits or page views the site generates. A website with many hits may be generating those hits from a small number of visitors who keep returning each day and who view many pages at the website
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