CPM (ie. ‘Cost per Mille’, Mille being “thousand” in Latin) is a metric well known to marketers. Over the years, it has become a standard way to evaluate the performance of on and off line marketing campaigns. It is mostly used to calculate the relative cost of a marketing campaign on a given medium.
Basically, it consists in determining how much a thousand impression of an advertising message costs, via a given marketing canal. The Math is real easy. CPM is calculated by dividing advertising costs of a campaign, by the number of impressions it generated. Dividing by 1,000 has become an industry common practice, based of the usual volumes, and low impression costs.
Even though this metric makes perfect sense for traditional marketing (radio, television, billboards, print, etc.), I believe it is not relevant as a standalone metric in digital marketing.
CPM does not take context into account
As previously mentioned, CPM is exclusively a quantitative metric. As such, it does not reflect the context of the impression. Technically, a campaign could very well be addressing the wrong audience, and yet CPM would not go impaired.
A blogger I’ve recently met told me how he noticed toilet paper banner ads on his culinary review blog. Clearly addressing the wrong audience. Still, the advertiser might have not noticed anything wrong with it in his reporting dashboard, as the CPM metric went stable, and as “good” as it ever was.
The success of any marketing campaign is conditioned by the context in which the message is transmitted. The audience must be segmented properly to make sure the right message reaches the right audience, in order to optimize marketing efforts (and expenditures). In case of a sponsored blog post, for example, it is advised to work with a blog specialized in the same industry, so your message resonates with the blog’s target audience. The campaign will end up performing significantly better.
In the culinary blog example, a relevant campaign (promoting a wine domain, a restaurant, etc.) addressed to the right target audience, committed to the blog, and passionate about the culinary arts, might have had a similar CPM. However, the global aftermath (click through, conversions, etc.) would have been significantly higher.
CPM is dissociated from performance
There is more to a marketing campaign than solely transmitting a message. Oftentimes, the real goal is to invite a prospect to complete an action (except brand awareness campaigns, clearly), possibly with the aim of generating a Return On Investment (ROI). That action (called conversion) can be a purchase, an opt-in email signup, collecting feedback, etc. This is the concept of performance in digital marketing.
Still, CPM by itself does not take performance into account. Marketers might not know if their campaign meets its goals or not. It could be a banner ad as well as a billboard in town, CPM does not allow to track conversions. Advertisers will not be pushed to test and optimize their campaigns, not to use all the great technical options online marketers have access to.
Generally speaking, CPM does not encourage any kind of re-assessment of currents marketing methods, tools, approach, etc. In time, it might encourage poor quality advertising, by valuing volume over quality. Marketers need to make business-oriented decisions, regardless of volumes of impressions.
So, What do I do now ?
Thank God, plenty of other metrics do exist. I would like to suggest a couple of alternative ones, with examples, and explain how you could use them to improve your bottom line.
Effective cost per click (ECPC)
eCPC brings together two key metrics: CPC (Cost Per Click, that is the unique cost of a click on a marketing campaign) and CTR (Click Through Rate, that is the percentage of clicks you get on that same campaign). eCPC is calculated by dividing CPC by CTR. This metric then allows you to value a low CPC as well as a high CTR in the same metric.
Here is an example, with 3 campaigns
Campaign A, CPC = $1, generated 10 clicks out of 100 impressions,
Campaign B, CPC = $2, generated 10 clicks out of 100 impressions,
Campaign C, CPC = $1, generated 5 clicks out of 100 impressions.
Campaign A’s eCPC equals 10, whereas campaigns B and C’s equals 20.
Campaign A has therefore performed twice as good as campaign C, for the same budget per click ($1). Similarly, Campaign A is twice as cheap than Campaign B for the same performance (10 clicks).
Therefore, eCPC reflects all (1) volume, (2) performance and (3) costs of the campaign. Conversely, based on CPM only, the Campaign C would have been chosen the best out of 3 campaigns.
This is another essential metric all marketers should know about. It determines the actual cost of a given action / conversion. The most common variation is the Customer Acquisition Cost (CAC): it is calculated by dividing the total marketing expenditure for a specific campaign, by the number of conversions, in this case new customers.
As an example, an Influence Marketing campaign costs $100 publication costs, and then an extra $2 per click. This campaign generates 100 clicks, and 12 new customers. Marketing expenditures for the campaigns are then $100 + $2 * 100 clicks, that is $300. Divided by the 12 conversions, the result is $25.
This metric is essential, as you will be able to put in perspective your marketing expenditure per new customer, with the profit they generate, and how it impacts your bottom line. Technically, a campaign will be considered profitable only if the average profit is superior to the average CAC. It is important to point out that, rather than the ‘one time profit’ a customer generates, it is wiser to consider the average Customer LifeTime Value (CLV), especially if your business has managed to build a high customer loyalty rate.
Marketing is constantly changing, and so should be our way to analyze it. The technological improvements allows us to go further in our interpretation of marketing data, and we marketers should make the most of it, in order to maximize the things that matter most, such as the bottom line of your company.
In a word, you should keep in mind that (1) the context matters a lot in the effectiveness of a marketing campaign, (2) performance can be taken into account in your marketing dashboards, and (3) how your marketing efforts impact directly the bottom line of the company.