Understanding the CPM Pricing Model: Concept & Benefits

Cost per thousand impressions displayed

The app marketing industry has multiple factors that contribute to the success of your app. One of the most important factors is choosing the right ad pricing model. 

There are many kinds of pricing models designed for mobile marketers, including cost per click (CPC), cost per install (CPI), and cost per impression (CPM). In this article, we will explore the concept and benefits of one of the most popular pricing models in mobile programmatic - CPM. 

What is CPM and How does it Work? 

CPM stands for “cost per mille” where “mille” is a Latin word meaning “thousand” and essentially translates as “cost per thousand impressions”. This means that the advertising cost depends on the number of impressions served. For example, if CPM is $10, the advertiser will pay $10 for every one thousand times the ad is viewed, that is, every time the ad receives one thousand impressions. 

How to Calculate CPM

The formula of calculating CPM is quite easy which explains the pricing model’s popularity in mobile advertising. Since CPM is the cost per thousand impressions, to determine the CPM for a certain budget you simply divide the total campaign spend by the number of impressions divided by a thousand. 


So, for example,  

$200 Ad Spend ÷ 75,000 Impressions X 1,000 = $2.66 (CPM)

Or to derive the other values in the equation:

Total Cost of Campaign = Total Impressions ÷ 1000 x CPM

Total Impressions = Cost of Campaign ÷ CPM x 1,000

Why Advertisers Benefit from CPM Pricing? 

The CPM pricing model offers plenty of benefits to advertisers. Here are the two main advantages:

Transparency - With CPM pricing, all parties of the programmatic ecosystem, including publishers, SSPs, DSPs, and advertisers, are aligned. There is complete transparency around ad spend, and any CPM improvements achieved by the DSP are shared with the advertiser. This encourages deep collaboration between the advertiser and the DSPs (such as Aarki), including sharing first-party data. We at Aarki ensure that any benefits our models get from this information flow are shared with the advertiser.

Optimizations towards User LTV - Irrespective of the pricing model, the advertisers' main concern is the users' lifetime value (LTV). Compared with the CPI model, the CPM model allows optimization for metrics most correlated with LTV, like return on ad spend (ROAS). Thus, advertisers whose goal is to acquire high LTV users turn to the CPM model.

Case Study

If CPI, why CPM?

With smartphones came the dawn of a whole new social and communication era, breeding an entire industry around app advertising. App marketers have always considered advertising as way to increase installs. Therefore, Cost-Per-Install (CPI) was a key metric to gauge campaign performance.

As the mobile industry has evolved, competition among apps has become fierce, and the customer-centric approach has become a primary strategy for app advertising. It helps marketers reach and keep their target audiences by leveraging user experience to improve retention and further profit from users' potential.

As a result, marketers are no longer simply focused on install volume. Acquiring high lifetime value (LTV) users is considered a critical factor for app growth. When it comes to evaluation, Return on Ad Spend (ROAS) is now another important KPI to appraise.

The Challenge

Recently, we at Aarki helped one of our clients through this transition.

Our client aimed to expand its high LTV user base for a popular dating app in tier 1 regions. Before working with Aarki, they only had fixed CPI targets and no experience with running campaigns on the CPM pricing model. After some discussions, endorsements from our teams, and our client’s desire to test new marketing approaches, we moved forward with running the campaign on the CPM model.

The CPM model provides more flexibility and enables us to perform optimizations toward improved performance. Several creatives across all major ad formats were launched for this campaign to optimize the initial performance.

The Explore Phase

After gathering sufficient Aarki-attributed data, our machine-learning models developed an understanding of the uniqueness of the app’s users’ behavior with the aim to deliver accurate predictions about their post-install engagements.

Efforts to a successful mobile campaign

Different from a fixed CPI model, the programmatic buys are based on real-time bidding (RTB) technology, and the whole supply chain uses the CPM model. Because the marketplace is dynamic, it is inevitable to hit some minor turbulence sometimes.

Luckily, Aarki’s robust machine learning (ML) models make adaptations quickly and can identify and avoid noisy data. This allows us to find the high LTV users during bidding, to maximize the ROI.

The heavy lifting behind the success of the campaign fell on our client service team, who identified insights based on the campaign performance and coordinated with the client, allaying concerns and paving the way for a smooth transition.

We continuously optimized the campaign to improve the performance as well as applying insights gleaned from past setups.

For example, during one of the optimization phases, we noticed some performance deteriorations. In response, we worked with the client to conduct tests, and optimized the campaigns accordingly. Through methodical testing, we implemented various optimizations based on the recommendations from our analytics team which included bidding adjustments, creative A/B tests, and delivery time adjustments.

The Results

As a result, after nearly a year of partnership, we have been entrusted with a budget that has grown to nearly 6X that of the original one.

We believe that these results were possible through the client’s deep understanding of our services, their commitment to accepting new challenges, as well as Aarki’s understanding of the programmatic environment, and our dedication to delivering outstanding results.

BONUS! What is eCPM?

The additional ‘e’ is the abbreviation for ‘effective’, it stands for the estimated earnings. As the CPM refers to “cost per mille”, the eCPM refers to the effective income of a thousand ad impressions. eCPM is the indicator of the revenue of app publishers, commonly used to evaluate the revenue of in-app advertising. In a nutshell, eCPM is a revenue metric and CPM is a buying model.

Interested in learning more about mobile in-app advertising? If you haven’t visited our whitepapers page yet, we encourage you to do so to get acquainted with the basics of programmatic buying.  

Topics: Marketplace Insights