Why CPM Is Neither Dead Nor Dying
ADOTAS – In a recent article titled “The Death of CPM,” the CFO of a B2B digital marketing platform company asked, “Are the old [cost per mille] metrics still working?”
This question implies that CPM once worked and no longer does. The effectiveness of cost per mille as a metric, if anything, becomes stronger as programmatic media-buying takes a greater on-stage presence in the advertising industry. Programmatic allows brands to become more adept at targeting the right people, which means that more of the users in each thousand impressions are intenders, and those haystacks that the author mentioned have more needles in them.
Not only that, but technology exists that helps you to find those needles quicker and more efficiently. Just poking around with hands puts you risk of pricking yourself (think of spending your ad dollars on testing campaigns to find the right audience, and ultimately experiencing a negative ROAS). In contrast, programmatic media buying acts like a magnet that sweeps over said haystack, adapting to reach each needle. You find the right customer in less time, and with a lower cost – leaving you with a higher ROAS.
But you can’t just pay for success. Suggesting that a brand pay its agency only for engagement with an ad or for ultimate conversions is like paying for online dating only when you find “the one.” This discredits the entire system behind the matching and the effort it took to bring you your ideal partner in the end. If CPM was completely removed from the table as a metric, and replaced with a metric that quantifies payment according to success, you can count on an advertising strike as significant as the Writers Guild of America strike in 2007.
This isn’t to say that CPM should be the core of the relationship between a brand and its advertising vendor. If that were the case, then the vendor would be motivated to simply serve as many ads as budgeted; the audience is of no concern. In order to make the relationship mutually beneficial, a backend metric should be factored in.
Focusing on a cost-per-click (CPC) metric encourages the vendor to serve ads that result in audience clicks, which, in theory, means that brands would be pulling users who are interested in your product or service. However, up to 1/3 of views and clicks for ad campaigns are the result of a bot, an accidental click, or a window-shopper who never converts. Focusing on CPC encourages the vendor to focus wholly on the end-metric needed – in this case, clicks. It removes the vendor from the brand’s ultimate goal, which is a form-fill, sign-up, purchase, etc. CPM is the metric that pays an advertising partner for their work. Measuring their effectiveness is a different issue. If direct response is the goal, then you should focus on a cost-per-action (CPA) metric on the back-end. If brand awareness is the goal, the back-end metric can be lift measured through a survey.
Let’s now move on to the argument that CPM is an “unreliable tactic” for B2B companies. Having a CPM metric doesn’t mean that you only get the answer to “How many thousands of people saw my ad?” You can also find out how many of the right people see your ad, and how many engaged. That’s part of the benefit of programmatic media-buying: the tracking. With beacons and pixels installed into the creative, not only is the impression tracked, so is user engagement. Even view-through becomes possible. Say a user views an ad for summer sandals, and then continues to browse other sites. Before shutting her computer down for the night, the viewer decides she does indeed want those sandals for her beach vacation next month. She visits the brand’s site directly, and moves forward, making the purchase. Tracking methodologies give proper attribution to the ad and allow the advertiser to measure the partner’s effectiveness independent of the pricing model.
Regarding the comment that “Running one campaign won’t have much of an impact on overall decision-making,” we agree that, in a B2B environment, a display ad rarely converts directly to a service purchase. This is a process that can take months or even years. However, the flight of one campaign will generate leads and can have an impact on decision-making. If strict measurability is needed, it is possible to connect ad spend to leads or deals that are closing, as discussed above. Additional benefits of CPM ad campaigns include transparency, insights, and the ability to switch back-end metrics. All of these are willingly supported by advertising partners who are being paid for the work they do. Many advertisers, including B2B companies, discover unique insights that reveal niche markets they were not previously aware of.
So, to sum: CPM is not dead. It should not be the only metric used to measure and pay for an ad campaign. There should also be a backend metric that keeps a brand and its vendor on the same page and in line with end objectives. By paying for the work of a partner on a measure of work done, and basing performance evaluations on separate back-end metrics, there is closer alignment of motivation between the partner and the advertiser. This allows the advertiser and their partner to work together to achieve the advertiser’s goals, to be open and transparent, and to be flexible enough to target who you want to target and to achieve what you want to achieve. It also frees your partner up to help you discover new audiences and hone in on those prospects who perform the highest. CPM is fair, flexible, a proper motivator, and certainly alive and well.
Good points on the validity of CPM. The faults of CPC clicks where addressed, yet CPM also has a history of wasted impressions – a fault which has made CPA based ads attractive to value conscious advertisers. The argument that better quality placements occur through CPM, I find difficult to embrace. Whether the placement is CPM or CPC, the quality of the placement and the response is only a good as the agency developing the plan. If the placements match the targeted metrics, then either method can succeed.
Good article and thanks for writing it. Totally agree that the “CPM is dead” matra is misinformed bunk. Was in the process of leaving a longer, more thoughtful comment, but if you take too long to enter a comment, ADOTAS auto-refreshes the page (in order to serve more imps) and wipes out your comment. How ironic. :-)
“yet CPM also has a history of wasted impressions – a fault which has made CPA based ads attractive to value conscious advertisers.”
So publishers are partners?…how about a 50% stake in companies that will pay us for results when we have no dog in the fight?
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