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.

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