When to Use CPM and When Not To
The digital advertising industry faces an increasingly problematic dilemma created by the continued practice of booking digital media on a CPM (cost per-mille, where mille is latin for “thousand”) impressions rate:
Many modern marketers aren’t using CPMs correctly.
While booking on a CPM basis made sense for the majority of traditional media, its use within digital media should be limited to certain situations.
Due to its rapid technological advancement, digital advertising entails a much different approach than traditional advertising.
A CPM basis for campaigns makes sense for some stages in the marketing funnel, but its adoption should be carefully assessed when applying it to digital media campaigns.
And in cases where it doesn’t make sense, booking on CPM can have a negative impact. This is demonstrated by the effect it has on the tools and techniques needed to optimize campaigns.
Let’s dive in.
Traditional Media vs Digital Media
Where digital media shines over traditional media is in its applications for brand and (more importantly) performance advertising. Here, we’ll focus on digital’s impact on the latter.
Brand advertising is focused on building a relationship between the audience and the advertiser without a direct desired action. Performance advertising is all about driving the audience to take a desired action. Advertisers pay when those desired actions take place.
With all its real-time data, monitoring and optimization capabilities, digital lends itself well to performance-based campaigns.
Although the advertising industry has evolved significantly over recent years, media is still commonly viewed, and often booked, through a traditional lens, ignoring digital’s often untapped potential in the performance arena.
CPM booking is a relic of using a traditional lens for planning and executing campaigns. It perpetuates traditional media’s limitations, like the number of metrics you can report on (e.g., reach and frequency). This in turn leaves little room to optimize a campaign — there isn’t much to learn about your audience by using it.
The roots of booking on a CPM basis are in the idea that the more people who see your ad the better. Depending on your business objectives, this may be true, but it ignores what digital media can bring to the table.
Using a digital lens provides the ability to focus on performance-based metrics, such as cost-per-click (CPC) and cost-per-acquisition (CPA). These metrics showcase digital media’s ability to guide decisions based on performance data by providing more insight into what drives your audience to act.
Because you’re measuring actions taken by your audience, you learn much more about them and the effectiveness of your campaign, opening the door to much more optimizations to further drive performance.
While digital media has increased our ability to measure and optimize towards performance-based results, it consequently created new ways to approach campaigns. Both in the way we book and, more importantly, the way we optimize.
When Booking on CPM Makes Sense & Why
Just because many digital advertising channels can report and optimize on performance in ways that traditional media can’t, doesn’t mean we should move away from CPM booking completely.
To determine if you need to book on a CPM basis, first assess where your campaign goal sits in the marketing funnel.
In addition to impressions served, reaching as many people as possible is arguably the most important metric for awareness-based campaigns (i.e., top of the funnel). These campaigns benefit the most from optimizations toward reach and impressions served, making CPM vitally important.
When optimizing towards CPM, though, the strategies and techniques can a negative effect on performance-based metrics. Because we’re more interested in serving the creative to as many people as possible, we’re limiting our optimization techniques that are in line with the goal of brand/awareness advertising, not performance advertising.
So, while CPM may go down, CPA/CPC may go up. This negative effect on performance-based metrics makes CPM booking the most logical option. It’s OK that performance metrics are higher because they are not your end business goal.
As we move down the funnel, some consideration/engagement (i.e, mid to bottom funnel) campaigns allow you to optimize towards performance-based metrics while also maintaining a finite CPM.
To illustrate, let’s say you have a display campaign where you want to drive a particular audience to a website (i.e., consideration stage). Here, you will not only target a specific audience segment, but you will also optimize towards CTR (click-through-rate). Both of these factors will increase the CPM because you’re getting more and more particular about who is seeing your ad (but not always, see the nuance note).
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Of course, we’re simplifying things in this example. Getting more particular about your targeting doesn’t automatically increase the CPM.
Optimizing in and of itself usually narrows your targeting/inventory availability which would increase the CPMs, but not always.
Targeting an audience segment from a data vendor is going to increase CPMs, but optimizing towards CTR doesn’t always increase CPMs.
For example, an open line item (no targeting) might have a better CTR than an audience segment. So, optimizing towards that won’t increase the open and would actually decrease the CPM.
If you were optimizing towards CTR (a.k.a. driving more budget) on an audience segment that had limited inventory, THEN the CPMs would likely increase because you need to buy more of that inventory.
For example, retargeting audiences always cost more due to their relative finite size, but also perform better on CTR.
Here, you will not only target a specific audience segment, but you will also optimize towards CTR (click-through-rate). These optimizations could include increasing the bid so you can win more of the auctions (for a particular audience segment) or adding a viewability filter, both of which increase the CPM.
In this situation, you will still want to book on CPM, but you should be book it at a higher rate because the targeting and optimization techniques will increase the overall cost.
In these cases, CPM booking still makes sense. But, there are cases where it doesn’t. Let’s explore them.
When Not to Use CPM
While CPM plays a larger role in awareness-based digital advertising, it increasingly loses its significance as you move down the marketing funnel. Because these stages inherently focus on user interaction, they warrant a different approach to the traditional CPM booking process.
While optimizing towards performance-based metrics can still be booked on CPM, other channels and performance-based metrics should not adopt this practice.
In a campaign where the primary goal is to generate leads/conversions, for example, you’ll need to make optimizations towards finding those most likely to convert. While digital media channels and platforms have optimization techniques that make this goal more achievable, they don’t come cheap.
Here, an inverse relationship exists between CPA and CPM. If you make it so as many people see your ad as possible, fewer and fewer will convert, making your CPA rise. On the other hand, if you make it so that a high percentage of the people seeing your ad convert, your likely targeting a smaller more relevant group of people, making for a high CPM.
Ergo, booking on CPM should be avoided whenever possible for CPA-focused campaigns. It will only limit the techniques required to generate leads and conversions.
When it comes to paid search, you should not rely on CPM. Paid search campaigns are often bottom-funnel conversion level initiatives (sometimes mid-funnel consideration level, as well). It is always charged on a pay-per-click (PPC) basis. That means every time someone clicks on your ad, you pay. It’s the exact same inverse relationship outlined above.
At the end of the day, you want to assess what’s more important to the campaign: serving a set amount of impressions, or optimizing towards metrics that will have a more direct impact on ROI.
If it’s the latter, then you want to empower the campaign manager as much as possible. Looking past a defined impression goal is a great start.
Digital media has completely changed the advertising industry for the better. We now have the ability to reach our desired audience more accurately, quickly and effectively.
While this is a big win for the industry, we still face challenges in the way digital media is booked.
Educating ourselves about the factors that play a role in the booking process is not only necessary to begin changing the way we approach media strategy, but also key to capitalizing on the advertising dollars spent.
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