Billboard Mastery Podcast: Episode 78

Understanding CPM

“CPM” stands for “cost-per-thousand” exposures. It’s an important metric that many advertisers use to evaluate different advertising options so it’s vital that you understand how it works – as well as the loopholes that nobody talks about. In this Billboard Mastery podcast we’re going to review how CPM is calculated and everything you need to know about it.

Episode 78: Understanding CPM Transcript

We all know that cars measure RPMs, but what's a CPM? This is Frank Rolfe, the Billboard Mastery Podcast. We're gonna talk about the CPM; what it means, how it relates to billboards, and what some of the loopholes are. So CPM simply stands for cost per thousand exposures. So the M means thousand. So C cost, P per, M thousand. That's the Roman numeral, what M stands for. So who cares? What does it mean? Well, to an advertiser, CPM tells them how efficient their advertising is. It tells them how much they're spending to reach every 1000 potential customers. So it's a big deal. So how do you calculate CPM with a billboard? Well, let's say that you've got a billboard and that billboard reaches 10,000 people a day. So over a 30 day period, it reaches 300,000 people. And then let's say, for that billboard you're going to reach, for those 300,000 exposures, it's gonna cost the advertiser $1000. That's a CPM in that case of only 30 cents, because that's how much you're spending as the advertiser to reach every thousand people. That is really, really attractive.

How do billboard stack up? Well, we stack up, typically, as the least expensive form of advertising that there is. Just always been that way. I've never known of a moment when billboards weren't the least expensive. However, there are some things right there in that statement which fall apart based on the internet. The internet may say, "Ah, no, I can reach people even cheaper." But it begs then some additional questions. Number one, who is your customers you're reaching? Remember that billboards only reach people on the roads near that business. The internet reaches people all over the place. You can have an ad for your Burger King that's online and seen by viewers in Washington state when you're in Oklahoma. Think that's gonna do you any good? Think they're gonna jump in their car and drive from Washington down to Oklahoma to get a burger? No. Pretty unlikely. So the quality of the traffic is a big deal, one of the problems when you just use the sheer CPM number. The other is, what do you do with that traffic? With a billboard, you can tell them where you're located at. You can say, "Exit now," or, "Exit number 170," and they can take action with it. But other forms of marketing out there, when you have CPM and even lower price than the sign, the problem is it's not in any position for them to do anything with the information. So it's not really all about CPMs.

So what are some of the biggest loopholes that you have with this whole concept of a mathematical measure of cost per thousand? What are some of the things that unravel that as being valuable? Well, the first one is qualification of the viewers. Are these real customers or are these just wasted exposures? That's where billboards really shine, because we tightly target customers in their cars in the proximity of that business. That is hugely important. So you don't have any waste. If I reach every viewer going down Interstate 44, near exit number 33 and that business is at exit number 33, every single person I'm reaching, every single one is a potential customer. Compare that same ad though into a magazine. Maybe you put your Western wear store in the magazine. That's great, everything, except you don't know who's reading that thing. That may be picked up in a new standby somebody, lives in different state, doesn't care. So that's the first problem.

The next problem is, does anyone even read the message in a lot of these other advertising forms? It's a sea of advertisements out there today, all over the internet. Just go to anything on the internet. How many ads do you see, all these revolving banners and things? Just 10, 20, 30, 100. I don't even know. Pick up a magazine. How many ads are in a magazine? Oh my gosh. 100, newspaper? I don't know. 300? But your billboard is sitting there all by itself. You go down the highway, you only see that very rare number of billboards compared to other media. You see the one right in front of you, and here's another one coming up. But there isn't this just plethora of ads you compete with. You can only read one at a time. The most distraction you might have would be the one on the right and the one on the left. That's about it. So with that CPM, you are giving them not just some little tiny, tiny, tiny little ad in a sea of 100 other options. You get them the big giant, typically 14 by 48 sign, which they don't have much competing with their time when they read it.

Also, you have the timing of taking action. There's nothing more powerful than a sign that says, "Exit now," or, "Exit number 12," or whatever the case may be. Because you are, point of purchase, reaching people with their ad at the very moment, the most important moment they have to get that customer in the door. Your billboard is just a giant, giant salesman that just conveniently hits and gives a sales pitch at the exact right moment every day, 24 hours a day. Other media does not do that. If I'm watching cable TV and an ad comes on for Larry's furniture, "Well, you know what? I am not in the mood to go buy furniture right now, Larry. I'm watching cable TV," 'cause it really drive me to action, the timing of it. But billboards stand alone. They are the only kind of advertising out there that actually has timing. They can tell you when to actually take action.

Finally, there's a loophole of, are you reaching the same people over and over or are you reaching new customers? Because in that CPM calculation, the problem you have when looking at the data is, if I hit the same 10 people one zillion times for your ad dollar, I only hit 10 people. Now, billboards tend to have a lot of non repeat customers, people just driving down the highway. And if you have a truck stop, you're gonna reach all the truckers going down that highway by your truck stop. It's an endless flow of new truckers. It's not the same ones over and over and over. Sure, you have a lot of Americans who commute to work, they go by the same billboards twice a day. But by and large, you are reaching a steady stream of new people. But a lot of other advertising, you're not. You're not reaching nearly the number of customers you thought. You thought, "Well, I've got this really low cost per thousand exposures," but it's the same thousand over and over and over. You're not getting any additional volume from that. You're not getting more additional revenue or sales because you're just beating the same people over and over again.

The bottom line to it all is that CPM is easy to calculate. It's just cost per thousand exposures. It means nothing more. It's not some kind of really high-level calculus math calculation. But the other problem is it does have lots of limitations. Now, the good news is, billboards still at strip almost all media or typically the bottom of the food chain as far as the cost per thousand. But as you can hear, there are lots of loopholes to that that make CPM not the most important unit of measure by far. This is Frank Rolfe, the Billboard Mastery Podcast. Hope you enjoyed this. Talk to you again soon.