How to Calculate CPM

Calculating CPM

Determine the campaign budget. An ad campaign is used to convey an idea or product to an audience. If you decide you have 10,000 dollars to spend on advertising, this is half of the data needed for calculating the CPM.

Determine the total number of impressions. In order to calculate the cost of one thousand impressions, you need the total number of desired impressions (target audience for the ad). For example, a company wants to run a campaign that will get 500,000 impressions. Tools like Google Analytics can be used to determine what kind of traffic a website is getting. Television and print typically use sales or ratings agencies for such data.

Do the math. The cost of the campaign divided by number of desired impressions, multiplied by 1000: (10,000/500,000) x 1000 = 20. This company would be spend 20 dollars per 1000 impressions on their ad campaign with a budget of 10,000 dollars.

Putting CPM to Use

Calculate the potential cost of an ad campaign. Often a CPM rate is established by someone selling ad space. You can instead use this formula to determine how much your campaign will cost you for a certain number of ad views. Total cost = (Total impressions x CPM) / 1000. For example: 1,000,000 impressions at a rate of 50 CPM (that’s 50 dollars per 1000 impressions) would cost 50,000 dollars.

Calculate your potential audience with your budget. Similarly, if you have a set rate and budget, you can determine if the potential audience is worth the money spent. Potential Audience = (Total cost x 1000) / CPM. For example: A 50,000 dollar advertising budget at a CPM of 10 can get up to 5,000,000 impressions.

Sell your space. If you have a website and want to earn advertising revenue, CPM will be calculated by your site’s traffic and the amount of money a company is willing to spend advertising to that audience. In web advertising this is often done automatically with a service like Google Analytics. The value of your ad space is calculated and sold to those who bid for it.

Maximize advertising cost benefit. CPM rates are useful to companies and advertisers trying to get their product to the largest audience for the most reasonable advertising cost. CPM is highly variable and can be used to compare costs across different media and spaces. Of course, other factors such as demographic information and ad visibility will influence the overall effectiveness of an advertising campaign. CPM is best used as a baseline for cost analysis.