What is CPM?
Cost per thousand (CPM), is a way of measuring and pricing advertisements. The acronyms are derived from the latin version of the phrase “cost per mille” where “mille” in English means “thousand.”
How to calculate CPM
To determine a CPM, you need to take the total amount being spent and divide that by the number of impressions a particular ad receives.
CPM Calculation
Example of a CPM calculation for a campaign
Note: Notice how the CPM is $1.66 and not .0166, this is because we are looking at cost per thousand.
Why is CPM important?
CPM is a gauge at determining the cost of advertising. It is a good indicator to test against nearly every type of advertising medium (radio, internet, print, television) because all other things being equal, it allows you to effectively judge the cost effectiveness of a medium, campaign, or advertisement.
Are you calulating impressions as the amount of times someone visits the page where a banner is shown or the number of times someone clicks on the banner to get more information?
Impressions are calculated by how many times a banner is shown. So if one banner is shown on one page load, that would be considered one impression.
Clicks are separate from and should be recorded against impressions which would give you the click-through rate (CTR) for an ad. This calculation will show you how well an ad is performing.
If you are calculating the cost per thousand impressions, you need to also multiply by 1000, otherwise your forumula just calculates the cost per single impression.
100 / 60,000 = 0.00166
(100 / 60,000) * 1000 = $1.66
Just so you know
How do you determine what CPM to charge on a newly launched site??
That’s a tough one as there are a bunch of different variables involved. From a publisher’s perspective you want to charge based on the quality of the traffic – not necessarily the quantity, which will allow you to retain advertisers more. For a newly-launched site I would take an approach of a flat monthly fee, then analyze the advertiser’s results and adjust accordingly.