The CPM Model Is Broken

We hate CPM. Plain and simple.

CPM’s or Cost Per Thousand Impressions is simply not a measurement that should exist for a digital marketing agency. Impressions on display ads are akin to eyes seeing a billboard on the street. If traditional marketing companies charged for “eye-views” they’d be out of business pretty fast. Want more impressions? Just find a busier street.

In digital, finding impressions is easy, their everywhere you look (literally), but impressions aren’t action… impressions aren’t connections to customers. Clicks. Calls. Likes. Comments. Shares. Leads. Sales. These are actionable metrics that produce value. This is what digital marketing should be measured by, and charged by.

In our many years in the digital advertising realm we’ve seen it all. Truth is when you dig into it, the CPM model really doesn’t add up. Let’s do a little math.

The 2015 average global click-through-rate on all ad formats and placements for display ads is 0.06% according to the current benchmarks by DoubleClick (the advertising arm of Google). That’s less than 1 click per 1000 impressions. So already… you’re paying too much. For example sake, let’s use 5x that number – so 0.3% click-through-rate (CTR).

Now let’s look at what many companies charge for CPM on their websites, or on their networks. We’ve seen everything from the seemingly reasonable $5 CPM, all the way to $45 CPM. When you do the math, here’s what we get:

$5 CPM x 0.3% CTR = 3 clicks at $1.50/click

$45 CPM x 0.3% CTR = 3 clicks at $13.50/click

Now remember, we’re inflating the average CTR for clicks 5x, and these are the results we get.

That’s a lot to be spending for clicks on a display ad. $13.50 is just about the ceiling for costs on search ads (for something like a mortgage/lawyer/insurance) – ads where people are actively searching for services you have to offer, not just passer-bys like they are in display. $13.50 a click is also no guarantee of a lead. This is a very hard pill to swallow for most companies.

Let’s take a look at another example, from one of our very own display campaigns.

This is an example of a display ad that we’ve been running and constantly optimizing over time. First number is clicks, second impressions, costs, click-through-rate (well above average woot!) and finally, cost per click.

(770k impressions/1000)/$772.04  = $0.997 CPM

$0.997 CPM x 0.31% CTR = 3.1 clicks at $0.32/click

These numbers all of a sudden make more sense – but when have you ever seen a CPM below a buck? Truth is, CPM’s don’t make your agency accountable. Truth is, getting impressions is easy, and getting clicks is hard. Generating a good click-through-rate involves expertise in targeting, ad copy and design, scheduling, budgeting, and analytics research and monitoring. Turning that click into a lead takes even more expertise in an understanding of user behaviour, landing page considerations, optimization technique and more. Anyone can make a poor ad, set some loose targeting, and jack up their bid to get impressions – but this isn’t good marketing. A CPM based model doesn’t hold your agency accountable to make effective ads and optimize – their goal is simply to get impressions.

CPM models are dead. CPC (cost per click) is where it’s at. CPA (cost per action) targets are great too. If your digital advertising is on a CPM model, you’re being shortchanged, and you should really ask why. Take some time to do the math on the true value of your advertising dollars. Is it generating clicks and leads at reasonable prices? Is it measurable? If not, you may want to dig a little deeper. You may be surprised by what you find.

End rant.

P.S. Before we get a bunch of hate-mail, we do want to state that if you absolutely must-have your ads on a specific website, and they don’t offer Google placements, then you may be forced to go with a CPM model. My only question to this is… does the math make sense? Because 99 times out of 100 it won’t stack up to a CPC model.