CPM Model Explained and its Advantages

CPM Model Explained and its Advantages

We work with performance marketers quite often and at some point we’ve noticed that understanding pricing models can be difficult for them, especially at the very beginning. This article gives a decent overview of the most common pricing models used in digital advertising and explains why CPM model is almost perfect for native ads.

Let’s take a bit of a deeper dive into the subject.


Pricing Models Meaning

All the models have their advantages and disadvantages. If you’re still not sure about the right model, think about your product, your KPIs (Key Performance Indicators), and your target users. Then decide what will work best for your campaigns. Just make sure you understand the pricing models correctly. 

CPM (Cost Per Mille) – a pricing model where advertiser pays for a thousand impressions.  So, basically, every time an ad loads on a page or in an application. It’s one of the most common ways of DSP media buying.

CPC (Cost Per Click), also known as PPC (pay per click) – in this revenue model advertiser purely pays whenever an ad is clicked on.

CPA/CPS (Cost Per Acquisition or Cost Per Sale) – in such a case, advertisers pay only if a conversion happens. It may be any desired action on the website, such as a sign-up or a purchase.  

CPL (Cost Per Lead) – simply put, a type of CPA. In this media buying model, advertisers pay when a lead form with some crucial user data is completed and submitted. 

CPI (Cost Per Install) – this model is reserved for mobile app marketers. Basically, it is like cost per acquisition (CPA), but just a bit more precise. Advertisers pay whenever the app they are promoting gets downloaded and installed by a user who interacted with an ad.

CPV (Cost Per View) known as PPV (Pay Per View) – a media buying model in which advertisers pay just for a single ad view on the publisher’s site.

Revshare (Revenue Share) –  this pricing model is based on the percentage payouts off the revenue made on offers. Every time a customer clicks on the ad, the advertiser pays publishers a fraction of their profits.


CPM Pricing Model Explained

CPM model relies on ad views (impressions). It does not matter if an ad was clicked on. Media buyers pay for every thousand impressions of an ad. For example, if a publisher (for example a website) charges a CPM of $2, you will pay $2 for every 1,000 ads that its visitors see.

OK, that was simple. And what about the eCPM? Have you ever come across it? It basically shows the actual cost per 1,000 impressions. 

  • If you buy traffic using the CPM cost model, the eCPM tells you how much you actually have paid for the traffic (for this cost model, the 2nd price auction bidding model is typically used, so after winning the auction, you pay a second highest bid plus one cent). Want to learn more about the 2nd price and the 1st price bidding models? Read this article
  • If you have purchased traffic using other (CPA, CPC, Revshare) cost models, the eCPM shows you the estimated average price for one thousand impressions

The eCPM is calculated using the below formula:

The formula of eCPM.

CPM Pricing Model and its Advantages

The main advantage for both brand and performance marketers is that they can lower the cost of advertising. The reason behind it is that CPM advertising comes with a pretty predictable pricing. You pay your declared CPM bid for a thousand impressions. If your ads generate a high CTR, CPM turns out to be a low-cost solution. What’s more, with CPM advertising platforms, there’s usually a whole lot of publishers and inventory to target. 


Which Pricing Model is Best for Native Advertising?

Agencies, brands as well as digital advertisers running native ads most typically look for either performance or brand-awareness. We’d say the CPM model is great for both! Why?

Simply, the CPM model is all about scale. The same with brand-awareness. If you’re paying by CPM, it’s easy to get a high ROI, especially when you identify your top performing creative sets. With each click on your creative, your brand or product is getting more popular while your cost per thousand impressions remains the same or goes down. That’s why it’s important to test your ads and scale the winners.

In this scenario, the click-through rate matters less, since the engagement from having an advertisement placed on a high volume source helps to promote a company or a message, even if a user does not click on the ad.

When you run a performance-oriented ad campaign, at the end of the day, all that matters is the performance. Whether you look for leads, sales or install, you want to get conversions at the lowest possible price. Now – here’s the thing. With the CPC model a good creative set, sometimes turns negative ROI because of the fact that the more clicks, the higher the cost is.

Let me tell you this once more – your choice of the pricing model depends on your goals.

  • Not ready to get charged with no guarantee of sales? Choose CPA.
  • Looking for impression scalability and ROI? Go with CPM.
  • Want to encourage your target audience to download a mobile app? Charge by CPI.

Hot Insight

With native media-buying solutions such as DSP, provided by Voluum, there are innumerable ways to increase your impression CTR and ROI as the optimization can be done at a few levels.

Voluum DSP allows advertisers to optimize your native traffic based on 3 different segments at once! For example, you can optimize your creatives (native ads) only on certain sites or browsers. Not to mention our new feature – Ad Space ID optimization. Basically, it’s the most granular optimization possible on the placement level. If you want to find out more about this groundbreaking feature, read this article.

But that’s not all.  Voluum has also developed an anti-fraud kit which enables you to identify click fraud and invalid traffic in your campaigns.  It means no more money wasted on bot traffic, as you can easily detect which publishers are selling suspicious visits and clicks and stop buying from them. It is an excellent choice if you are looking for full transparency


Conclusion

As you can see, different pricing methods are more appropriate for some ad campaigns than others. When choosing a pricing model, first analyze your product, the target audience and then try to decide what will work best for your native campaign. At the end of the day, it’s all about reaching your campaign goals.

CPM advertising is a great opportunity especially for advertisers whose goal is to create a brand equity to reach potential customers.  Also, don’t forget that when running CPM campaigns you’ll still get clicks to your website. Pretty much you are getting the best of both worlds. So, don’t be afraid to test! 

Wondering how to start an effective CPM native campaign?

Voluum DSP ad management experts are here to help you!

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