Lesson 2 of 5 · 6 min read · beginner
Impressions, CPM and how ads are priced
CPM, CPC, CPA, CTR, eCPM and ROAS decoded with simple maths, so you can read any media plan or ad invoice with confidence.
Ad people speak in three-letter codes: CPM, CPC, CPA, CTR. They sound scary but they are really just different ways of answering one question: what exactly am I paying for? Once you know the handful of formulas, you can read any media plan, compare a TV deal with a mobile campaign, and spot when a number looks too good to be true.
Imagine a street vendor in São Paulo paying to put a poster on a wall. She could pay per thousand people who walk past (that is CPM), per person who stops and asks about her stall (CPC), or per person who actually buys a pastel (CPA). Same wall, same poster, three very different deals, and each one shifts who carries the risk.
CPM: the price of attention in bulk
An impression is one ad shown once. Because single impressions are worth tiny fractions of a cent, the industry prices them in thousands. CPM stands for "cost per mille", mille being Latin for thousand. A 4 dollar CPM means the advertiser pays 4 dollars for every 1,000 impressions, or 0.4 cents per ad shown.
The formula is simple: CPM = cost ÷ impressions × 1,000. If a campaign cost 2,000 dollars and delivered 500,000 impressions, the CPM is 2,000 ÷ 500,000 × 1,000 = 4 dollars. CPMs vary hugely: a banner on a small blog might sell for well under a dollar, while an ad in a premium streaming show can cost many times more, because the audience, the format and the context are worth more to the buyer.
Paying for actions instead of views
Some advertisers do not care about views; they care about results. So other pricing models exist:
| Model | You pay for | Formula | Who carries the risk |
|---|---|---|---|
| CPM | Every 1,000 impressions | cost ÷ impressions × 1,000 | Advertiser (ad may be ignored) |
| CPC | Each click | cost ÷ clicks | Shared |
| CPV | Each video view (definition varies) | cost ÷ views | Shared |
| CPA | Each purchase, sign-up or install | cost ÷ conversions | Publisher or network |
A conversion is whatever action the advertiser counts as success: a sale, an app install, a form filled in. Search ads on Google are often bought per click. Performance marketers in India selling loans or insurance often pay per lead or per sign-up. Brands launching a new perfume in France typically buy on CPM because they want to be seen widely.
The rates that tell you if it is working
CTR, or click-through rate, is clicks divided by impressions. If 1,000 people see an ad and 3 click, CTR is 0.3%. Display banners usually have low CTRs, well below 1%, so an unusually high CTR on cheap inventory can be a warning sign of accidental clicks or bots rather than a sign of genius creative.
ROAS, return on ad spend, is revenue earned divided by ad spend. If a shoe shop spends 1,000 euros and tracks 4,000 euros of sales, ROAS is 4, often written 4x or 400%. It is the number e-commerce teams watch most, though it depends heavily on how sales are credited to ads (that is a whole later track on attribution).
eCPM: comparing apples and oranges
Publishers are often paid in a mix of ways: some ads on CPM, some on CPC, some on CPA. To compare them, they convert everything into eCPM, "effective CPM": total earnings ÷ impressions × 1,000. If a slot earned 30 dollars from 10,000 impressions through click-based deals, its eCPM is 3 dollars, which can then be compared directly with a 2.50 dollar CPM offer.
- Collect total revenueAdd up everything the slot earned in the period, regardless of pricing model.
- Count impressionsTake the number of impressions served in the same slot and period.
- Divide and multiplyRevenue ÷ impressions × 1,000 = eCPM.
- CompareNow you can rank demand sources by what they truly earn per thousand impressions.
Fill rate: the unsold seats
A publisher does not sell every impression. Fill rate is the share of ad requests that actually got an ad. If a news app asks for 1,000,000 ads and only 850,000 are filled, fill rate is 85%. Publishers care about both price and fill: a high CPM on a tiny share of traffic can earn less than a modest CPM on almost all of it. That tension shapes how they set price floors and choose partners, as you will see in the programmatic track.
KPIs: choosing the right yardstick
A KPI (key performance indicator) is the one or two numbers a campaign is judged on. A brand-awareness campaign in Japan might use reach and viewable impressions. A food-delivery app in Brazil might use cost per install and cost per first order. Choosing the wrong KPI leads to bad incentives: if you only reward clicks, you will buy lots of clicks, including fake ones. Good buyers pair a price metric (CPM, CPA) with a quality check (viewability, invalid traffic rate, real sales).
Key takeaways
- An impression is one ad shown once; CPM is the price per 1,000 of them.
- CPC, CPV and CPA shift risk from the advertiser toward the seller by paying for actions instead of views.
- eCPM converts any mix of pricing into a single comparable number for publishers.
- Fill rate, CTR and ROAS show whether cheap prices are actually delivering real value.
- Always pair a price metric with a quality check, because fake or unseen impressions make cheap media expensive.
Questions people ask
What does CPM mean in advertising?
CPM means cost per mille, or cost per thousand impressions. It is what an advertiser pays for 1,000 ad views. You calculate it by dividing total cost by impressions and multiplying by 1,000. A 5 dollar CPM means each individual ad shown cost half a cent. CPM is the standard price for display, video and streaming ads.
What is the difference between CPM and eCPM?
CPM is a price agreed in advance for every thousand impressions. eCPM, or effective CPM, is calculated afterwards from actual earnings: total revenue divided by impressions, times 1,000. Publishers use eCPM to compare demand sources that pay in different ways, such as per click or per install, on the same scale as ordinary CPM deals.
What is a good click-through rate for display ads?
There is no universal number, because CTR depends on format, placement, audience and country. Standard display banners typically sit well below one percent, while search ads and some native formats are higher. Instead of chasing a benchmark, compare against your own past campaigns, and treat unusually high CTR on cheap inventory with suspicion, since accidental taps and bots can inflate it.