I first dipped my toes into the world of media buying through an agency job.
The upside? I learned a lot from experts who have been in the field for way longer than I have. The drawback? I didn’t question what I was taught, for the most part.
When one of my Google Ads clients asked me about the cost-per-impression (CPM) on their search campaign, I simply told them to disregard the metric. But I couldn’t explain why.
To top it all off, the same client manages their Facebook ads, where advertising costs are dictated by cost per impression (CPM). When an advertiser is used to a certain paid ads platform, they assume that all knowledge is transferable to other platforms. But with Google search campaigns, CPMs don’t tell you what it does with Facebook.
Since I couldn’t find many articles out there about this, I decided to take the opportunity to turn my learnings into this blog. After all, digging under the surface and understanding not only how but also why things work the way they do is how to get better at media buying.
What does “CPM” mean?
CPM, also referred to as cost-per-impression or cost-per-mille, is an extremely common metric in digital marketing. It’s how much money you’re paying to get 1,000 eyes on your ad. A higher CPM just means that the platform you are using is charging a higher price to show your ads.
Although CPMs do tell you the costs of your ad being shown, it does not speak to the effectiveness of your ads. So while it’s important to get your ad in front of your target audience for as low of a cost as possible, what really matters is how those users interact with your ad. This is where metrics like click-through rate (CTR) and conversion rate (CVR) come into play.
And, while every ad platform will show you a dedicated CPM metric, the meaning changes for different platforms and campaign types.
CPMs in Facebook ads
Before we get into what CPMs tell you in Google ads, I wanted to jump into what they tell you in Facebook ads.
Why? Because Facebook runs on a CPM pricing model. And if you’re wondering what CPMs mean on Google ads, you probably learned media buying from managing Facebook ad accounts. And it’s easier for me to illustrate where the confusion about CPMs on Google comes from by starting with CPMs on Facebook.
On Facebook, you’re charged based on ad impressions. This is different from paying for actual interactions, such as clicks, which is the case with Google ads. You pay every time your ad shows on one of Facebook’s ad placements. For example, if your CPM on Facebook is 10 dollars, this means that Facebook is charging you $10 every time it shows 1000 times in the social media platform’s ad space. (Note: This does not mean 1000 different users. It simply means that your ad will be shown 1000 times.)
So, Facebook uses your targeting and its machine learning and shows it 1000 times to users on the platform. Then, it’ll charge you $10.
Now, let’s get into a working example:
*I am about to use low CPMs and CPAs as examples. Partly because the numbers are easy to work with. Mostly because I’m manifesting.
Let’s say that you set a daily budget of $50 per day. With a CPM of $10, Facebook will show your ad to 5000 times per day. Let’s say that you have 2 conversions that day, with a cost-per-acquisition (CPA) of $25. Your product sells for $50.
The total amount you’ve made is $100, while only spending $50 on ads. This means your ROAS is 2.
But, if you can lower your CPMs on the platform, then your ROAS will increase, assuming the same engagement metrics. For example, if you can decrease your CPMs to $5, then the app will show your ad 10,000 times a day, spread across all its ad inventory. Keeping CTR and CVR the same, 4 people converted.
You now made $200, while only spending $50 on ads. This means your ROAS is now 4.
See what happens here? Without changing other factors, your lower CPM increased your ROI. This is all because Facebook bills you based on your CPMs. It’s the platform’s pricing model.
This is not to say that lowering CPMs is the easiest way to increase your ROAS. The truth is, there are things out of your control that result in higher CPMs, like seasonality. There are other levers you can focus on, like creative testing and audience targeting, as well as experimenting with different ad formats and placements, which are optimizations that could also help drive CPMs down.
So now you understand the role that CPMs play in Facebook, and why it’s so important to keep them low. Let’s move on to Google ads.
CPMs in Google ads
If you learned media buying on Facebook you probably had a mini heart attack when you added CPMs to your columns view in Google. And so did my client who first raised this issue with me. It’s usually the case that branded campaigns have a lower CPM, whereas generic campaigns typically have a high CPM. You’ll find out why in just a minute.
CPMs fundamentally mean the same thing across all the different advertising platforms. But, they’re calculated a little differently when it comes to Google search* campaigns.
*For this blog to make the most sense, I’m going to only focus on Google search campaigns. Google has many different campaign types, including YouTube and Display ads. Those ad campaign types behave differently than your standard search campaign.
How does Google charge its advertisers?
Cost-per-clicks (CPCs) determine the cost of Google ads search campaigns. Your CPCs are determined by one of two things:
- The maximum bid that you set. This is especially true if your account is on a manual bidding strategy, “Manual CPC.”
- The CPC that Google determines is based on a few factors, including the bids of your competitors, and the likelihood of a user converting on your ad. This is especially true if your account is on any of the automated, or smart bidding strategies.
Essentially, the cost of search ads on Google is not determined by CPMs. They’re determined by cost-per-clicks.
Breakdown: CPMs in Google ads
We’ve established how Google charges its advertisers. Now, let’s jump right back into the goal of this article: to explain what CPM tells you in your Google ads account.
Let’s jump into another working example:
Here’s the data over the last 7 days of a search campaign called Pia’s Search Campaign:
Note: These are not the best columns to look at when analyzing performance. But it’s everything I need for this explanation, so I’m limiting it to these.
If you’re used to dealing with CPMs on Facebook’s ad platform, your heart probably sank when you saw that CPMs were $81. But remember, the cost of your ads isn’t determined by CPMs, they’re determined by CPCs.
Now, we have to find a relationship between CPMs and CPCs.
We know that the total cost of the ads is $239.35. Since an advertiser pays only when potential customers click on the ad, Average Cost is calculated by CPC * Clicks.
In this case: 1.91 * 125 = 239.35
Now, let’s look at the data and see if we can find a relationship between cost and impressions. We can find out how much it costs us for 1 impression by Cost / Total Impressions.
In this case: 239.35 / 2955 = 0.081.
So, the cost of 1 impression on this search campaign is 0.081.
To find out how much it costs for 1000 impressions (Reminder: The definition CPM), we multiply this number by 1000.
In this case: 0.081 * 1000 = 81.
And voila! This is actually how Google itself calculates CPM for our search campaign.
The full equation: CPM = (Cost / Impression) * 1000
It’s as simple as that.
Now, remember when I said that generic campaigns typically have higher CPM rates? That’s because they have higher CPCs than branded campaigns. And, as we just established, Google’s CPM works by taking the cost of the ads, and translating that cost into a CPM.
So, do CPMs matter in Google ads?
Essentially, the CPM metric in your platform is Google’s way of showing you how much it costs to show your ad 1000 times. But since that’s not even how it charges you, you’re better off disregarding it. If you want to understand how much your search ads are costing you, look at CPCs.
And if you want to lower your costs, focus on lowering your CPCs. Or better yet, focus on other ROAS-boosting optimizations like increasing your Quality Score, ad quality, and ad relevance.
