How to calculate CPM accurately and factors that affect CPM

I. What is CPM?

CPM stands for “cost per mille.” The word “mille” in Latin means thousand. CPM is understood as the cost per thousand impressions, also known as cost per thousand (CPT).

CPM is a method of calculating advertising costs on the internet today. The cost associated with 1 CPM represents the payment for 1000 impressions. Due to its simplicity and the fact that 1000 impressions is a suitable number for calculating expenses, CPM has become a standard and default definition in the advertising industry. Platforms that use this payment model include Google, Facebook, Adsense, YouTube, etc.

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II. How to Calculate CPM?

Calculating CPM is quite simple, and advertisers can do it without needing a calculator. The formula is (total cost : total impressions) x 1000. For example, if the ad cost is 50,000 VND and the number of impressions is 5,000, then the CPM is (50,000 : 5,000) x 1000 = 10,000 VND.

Additionally, users can understand the meaning of the CPM metric. For example, suppose the advertising system informs the administrator that the CPM price is 100,000 VND. This means that for every 1000 ad impressions, they will be charged 100,000 VND.

III. Advantages and Disadvantages of CPM

CPM is a unit widely used for online advertising payments today. Like other types of units, CPM has its own advantages and disadvantages. Advertisers need to consider the type of campaign and the business conditions to decide whether this payment method is suitable. Below are the basic advantages and disadvantages of CPM:

1. Advantages

When using CPM to calculate expenses and pay for ads, advertisers will have several benefits for their work. Here are some advantages of CPM.

1.1. Simple and Easy-to-Understand Calculation

The CPM calculation is simpler and easier to understand compared to many other units. Unlike the CPA method, which involves complex formulas, the CPM calculation only requires basic multiplication and division. This allows users to calculate manually without the help of a calculator. Additionally, users can quickly understand the CPM data.

1.2. Easy to Use

CPM is easier to use than other metrics. Administrators only need to set up ads and create content for them to display. The CPM advertising model only charges based on impressions, not on interactions like CPC, CPA, etc.

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1.3. Choosing Display Locations

In particular, CPM is a type of advertisement where the display location can be customized. This allows users to choose positions on the homepage, blog, or website that best match the content, achieving the highest possible engagement.

2. Disadvantages

Along with the advantages mentioned above, CPM also has a few drawbacks for users, such as:

2.1. Low Advertising Effectiveness

The effectiveness of CPM advertising is not very high. Since it is a display ad, even if users see it and ignore it, the business still has to pay. As a result, many cases of using this advertising model do not yield profits.

2.2. Highly Competitive Market

The competition for CPM advertising is very high. Many large companies use this advertising method to maintain their brand image in the eyes of viewers. They are willing to spend large sums of money to display ads in the most attention-grabbing positions. Therefore, smaller advertisers will find it difficult to compete for these advertising spots.

IV. What is the Best CPM Price?

CPM, like other cost metrics for advertising, does not have a universal value that fits all campaigns. The price of advertising will depend on various factors. In general, the cost of CPM advertising is much lower compared to other types like CPA, CPC, etc.

For large brands like Shopee, Coca-Cola, KFC, etc., their advertising focuses on maintaining their image in the minds of customers. Therefore, they may be willing to pay large amounts for premium ad placements on social media platforms.

For small businesses, CPM ads strike a balance between cost and effectiveness in attracting attention. Therefore, the CPM price will continuously fluctuate depending on various factors related to the business and the advertising platform.

V. Factors Affecting the CPM Calculation

The CPM metric will change based on different situations. The algorithm of the advertising platform analyzes the following factors to determine the corresponding CPM calculation:

1. The Timing of the Advertisement Influences the CPM Calculation

The timing of the advertisement significantly affects the CPM calculation. Typically, during holidays, people tend to travel or spend time with friends, leading to a decrease in social media traffic. This results in fewer accounts available for displaying ads. Consequently, CPM prices will spike during such periods.

Additionally, on holidays that attract high traffic, such as Black Friday or June 6th, brands will increase their advertising efforts. The high demand for ads leads to a highly competitive market, which, in turn, causes CPM prices to rise.

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In some social networks that operate on a bidding system, such as Facebook, the competition is much stronger compared to traditional advertising submission methods. In many cases, the CPM may fluctuate greatly, rising or falling at different times of the day.

Therefore, if a business only needs to maintain brand image, it can reduce advertising costs during peak periods. On the other hand, businesses that need to quickly promote their image may increase their advertising budget to compete.

2. Viewer Feedback

Viewer feedback is an important factor that helps the algorithms of social media platforms assess and notify businesses about their CPM. In some ads on platforms like Facebook and Google, viewers can provide feedback or close ads and answer a few questions. This feedback will affect how the CPM is calculated by the algorithm.

2.1. Positive Feedback

For positive feedback, the algorithm assumes that the business’s ad is relevant to consumers. One indicator of positive feedback is the click-through rate (CTR).

Ads that do not disrupt the user experience will help maintain a stable CPM. In particular, if the ads are of high quality and can attract a large number of users, the CPM may decrease. This is because social media platforms want businesses to run ads intelligently, benefiting all three parties (businesses – social media platforms – viewers).

2.2. Negative Feedback

Generally, social media platforms prioritize ensuring a positive user experience over advertising profits from individual businesses. Negative feedback such as hiding ads, reporting ads, or marking them as spam helps the algorithm identify ads that are providing a poor experience for viewers. As a result, these algorithms will increase the CPM as a penalty and a warning for the business. The more negative feedback there is, the higher the CPM will rise.

3. The Content of the Ad Affects the CPM Calculation

The content is the most important factor determining whether an ad attracts users. Additionally, content reflects its friendliness toward viewers. If the ad content is useful or, at the very least, does not degrade the user experience, the CPM will remain stable.

If the content is deemed sensational, dishonest, excessive, or violates the social media platform’s policies, the CPM price will skyrocket. This is because poor-quality ads may lead to a decrease in the number of users on that platform. Therefore, the CPM will be increased as a compensation cost.

4. Ad Frequency

The frequency at which an ad appears will affect the CPM calculation by the algorithm. Ads that appear more frequently will see an increase in CPM. Depending on the purpose of the advertisement, the advertiser needs to estimate an appropriate frequency.

If the business wants to quickly build its brand image in the eyes of customers, it should increase the frequency to 3-5 times or more. However, it is important to note that the ad frequency should not appear continuously within one day to avoid being flagged as spam or overused.

For sales and product promotion purposes, the frequency for each product should be kept under 3 times. After that, the business should switch to a different product. Additionally, if the business does not want to change the product, it can opt to change the target audience. However, this may reduce the effectiveness of the ad if the new user group is not a good match for the product.

5. Ad Placement

Ad placement is a key factor that strongly influences the CPM calculation by algorithms. Each placement location will have a different ad price. This is due to the visibility of the ad position in the eyes of the users. If the ad is placed at the top of the website or near the center, the CPM will be relatively high. Furthermore, premium positions attract more businesses, leading to fierce competition.

Especially for large platforms like Facebook and Google, top businesses are always willing to pay a high price to have their ads appear first and closest to the center. Advertisers need to clearly understand the business’s advertising goals and financial conditions to choose the most suitable placement.

The CPM calculation is not too difficult for everyone. Advertisers should regularly monitor this metric to track their advertising campaigns more effectively. We hope the information we have provided will help you understand CPM and how this metric is calculated.

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