Mastering CPM: How Audience Demographics and Ad Placement Influence TV Advertising Costs

Back to basics. Let's kick off our guide with a quick refresher on what CPM is.

Cost per thousand, or Cost per Mille (CPM), denotes the price of 1,000 advertisement impressions. In TV advertising, one impression refers to one individual exposure to an advertisement. The formula for calculating CPM is:

CPM is calculated using the formula: (Advertising cost / Impressions generated) * 1000.

Why do we care about CPM? It is used to assess the ad cost across various television networks and programs. Typically, expressed in dollars, CPM represents the cost of running an ad on a specific program or network for a given period. For a comprehensive understanding of CPM in advertising, you can refer to our glossary or to the article TV CPMs: Understanding the Cost of Television Advertising.

Here, we'll dive deeper into the factors that influence this metric and how to navigate these elements to maximize the efficiency of your TV ad campaigns. CPMs are highly dynamic, affected by variables such as the advertiser base, seasonality, and whether the buy is upfront or scatter.

In a perfect world, we could set the perfect TV ad campaign once and maintain the lowest CPM indefinitely. However, reality dictates otherwise. CPMs fluctuate constantly due to factors like advertiser demand, seasonal trends, market dynamics, etc. Our primary goal is to help you steer through this ever-changing landscape effectively.

Factors impacting CPM

Audience size and demographics affect CPM in TV advertising

Larger audiences and targeted demographics lead to higher CPMs due to demand, scarcity, and advertising reach effectiveness. Understanding these dynamics is crucial for advertisers to optimize their campaigns and budget allocations. Competition for smaller audiences is higher, making them more expensive to reach, while larger audiences are cheaper. Consequently, CPM for smaller audiences is higher, and for larger audiences, it is lower.

If your brand’s potential customers are baby boomers, the CPM for your campaign would be lower than if you were trying to reach the 18-25 group on traditional TV.

Here are some examples of CPM for different audiences - 8-25 and 55+, over a period from March 2024 to May 2024. As you can see, linear TV CPMs for 55+ are significantly lower and more stable than 18-25 because they are still relatively plentiful in traditional TV.

The next chart shows us the average CPM for the 18-25 and 55+ age groups across four different genres: Drama, News, Reality, and Sports. The CPM for the 18-25 group is significantly higher in all genres, especially in News, where it reaches close to $800. The CPM for the 55+ group is minimal across all genres.

Demand around a program or network

Programs with the largest audiences typically command the highest CPMs. Prime-time shows, for instance, often boast the highest CPMs due to their broad reach. These shows, airing during the coveted evening hours when most people are tuned in, attract a vast and diverse audience.

The scarcity of ad slots during these highly-rated programs further intensifies competition among advertisers, driving up CPMs even more, especially in the scatter market. Here, last-minute ad buys become a frenzy of competition, with brands vying for those few remaining spots. This dynamic creates a premium environment where only the highest bidders secure their place in front of millions of viewers.

So be ready that during the season premiere of a highly-anticipated show, the season finale of a extremely popular series, Presidential debates, or especially the Super Bowl, CPM will be sky-high.

Here is an example of how the CPM changed due to the May 2024 Presidential Debate.

On this chart, we indexed the previous CPMs to the CPMs of the Presidential Debate and contrasted the previous two months’ CPM relative to it. As you can see from the chart below, CPMs prior to the debate were significantly lower – coming in at x% one month below, and y% two months below. Tentpole events like the Presidential Debate give networks (like CNN) the opportunity to charge significantly higher CPMs for an event that would attract a larger audience versus the status quo.

Seasonality and market dynamics

During festive seasons, such as Thanksgiving and Christmas, CPMs typically rise due to increased consumer spending and heightened competition for ad placements. Especially high CPM would be driven by high advertising demand from such categories as retail, fashion, electronics, travel, and, counter-intuitively, financial services - people might open new accounts or take out loans during this time. Even car purchases see a boost.

Role of ad position in determining CPM

Traditionally, ad position within a program or break does not significantly impact the CPM. The position of an ad, whether at the beginning, middle, or end of a break, typically does not alter the cost per thousand impressions. However, potential influences can arise with sponsorships or special placements. For example, if an ad is part of a sponsorship package or strategically placed during a high-visibility moment, it might affect the CPM. Even then, the impact on CPM is not always guaranteed, as it depends on the specific terms of the sponsorship and the perceived value of the placement.

Common challenges in managing CPM for TV campaigns

Negotiating CPMs

• Inflated estimates: CPM is typically negotiated based on a network's sales estimates, which are often inflated.
• Utilizing ADUs: Networks might need to use Audience Deficiency Units (ADUs) to meet guaranteed CPMs. ADUs are free advertising slots given to advertisers to compensate for viewership shortfalls during the contract period.

Limited ad slots:

• High-demand programming: Popular shows and peak viewing times have limited ad inventory.
• Increased CPMs: This scarcity drives up CPMs, making it tough to secure placements at reasonable rates.

Intense competition:

• Popular shows and events: Advertisers compete fiercely for slots during high-profile events like the Super Bowl.
• Budget strain: This competition can significantly raise CPMs, straining the budgets of smaller advertisers.

Inconsistent measurement:

• Reliance on Nielsen ratings: Traditional linear TV relies on metrics like Nielsen ratings, which may not accurately reflect real-time audience reach beyond basic demographics (age and gender). That is why specific tool, like Simulmedia’s TV+ platform, which helps advertisers work with audiences, is needed
• Evaluation challenges: This inconsistency can complicate the assessment of CPM effectiveness.

Economic conditions:

• Impact on budgets: Broader economic factors can influence advertising budgets and spending behavior.
• CPM rates and availability: Economic downturns may lead to reduced ad spending, affecting CPM rates and availability.

Ad quality and relevance:

• Indirect impact: While not directly a part of CPM, ad quality and relevance significantly impact its effectiveness.
• Engagement and CPMs: High-quality, relevant ads are more effective in driving engagement and achieving lower CPMs. Advertisers should continuously produce content that resonates with audiences.

Using data analytics to improve CPM Rates

Utilizing data analytics effectively can significantly enhance CPM rates by focusing on two key strategies:

Identifying underutilized inventory

Through data analysis, advertisers can pinpoint underutilized segments of inventory, such as specific networks or dayparts, where there is low demand but a high concentration of the target audience. These segments often present more cost-effective opportunities for ad placement, as they tend to have lower CPMs compared to highly sought-after slots. By strategically placing ads in these underutilized areas, advertisers can reduce their overall CPM and maximize the value of their media spend.

Targeting high-concentration audience segments

Data analytics also helps in identifying audience segments that are densely populated within certain inventory buckets. Targeting these high-concentration segments ensures that ads reach a large portion of the desired demographic without the premium costs associated with more competitive slots. This targeted approach not only improves ad efficiency but also enhances the effectiveness of the campaign by aligning ad placements with audience behavior and preferences.

CPM and ROI in TV advertising campaigns

Generally, a higher number of impressions should lead to a better ROI, provided that you are effectively targeting the right audience.

Higher CPMs can potentially yield better ROI when the ads effectively engage and resonate with the target demographic. Advertisers must ensure that the CPM costs align with the expected increase in sales or brand awareness. For instance, a strategically placed ad during a high-demand program can significantly boost returns, justifying the higher CPM.

However, measuring ROI from TV campaigns presents unique challenges. Unlike digital advertising, where clicks and conversions are directly trackable, TV advertising requires alternative methods for attribution. To address this, advertisers can use statistics provided by TV networks or leverage platforms like Simulmedia TV+, which aggregates data from various providers. This approach helps in assessing the impact of TV ads more accurately and linking them to sales increases or improved brand metrics.

Conclusion

In this guide, we’ve explored the complexities of CPM (Cost Per Thousand Impressions) in TV advertising, shedding light on its role and implications for effective campaign management. Here are the key points discussed:

• CPM and Audience Dynamics: Smaller audeinces and more targeting generally lead to higher CPMs due to limited viewership (makes them harder to find), increased demand, and competition. Broader audiences, while less expensive to reach, often come with a higher CPM.
• Market Timing: The distinction between upfront and scatter markets affects CPM rates. Upfront buys typically have lower CPMs compared to scatter buys, which are more expensive due to limited inventory. However, scatter works better for your timing and provides marketers with a greater degree of control to manage their spend
• Demand and Seasonality: High-demand programs and peak viewing seasons drive up CPM rates, making it essential for advertisers to plan strategically to balance costs and visibility.
• Ad position impact: Traditionally, the position of an ad within a program does not significantly impact CPM, except in cases of sponsorships or special placements, which might offer some influence on costs.
• Challenges in CPM Management: Advertisers face various challenges, including inflated CPM estimates, competition for limited ad slots, inconsistent measurement metrics, and broader economic factors that affect budget and CPM rates.
• Data Analytics Utilization: Data-driven strategies, such as identifying underutilized inventory and targeting high-concentration audience segments, can improve CPM rates and enhance campaign efficiency.

The industry's fixation on CPM vs. cost-per-reach

The advertising industry often fixates on CPM as a primary metric, but this approach may not always align with the broader goal of maximizing reach and engagement. CPM focuses on the cost of impressions, but a more comprehensive perspective would be to emphasize cost-per-reach. Cost-per-reach evaluates the cost of reaching a unique individual, providing a clearer picture of ad effectiveness in connecting with the target audience.

Argument for a greater emphasis on cost-per-reach

Shifting focus to cost-per-reach can offer a more nuanced understanding of ad performance. By evaluating how efficiently an ad reaches unique viewers, advertisers can better assess the true impact of their campaigns and optimize their budgets accordingly. After all, the life in likelihood of a consumer to take action is greatest when moving them from 0 exposures to 1 exposure – you can expect far greater exposure there than moving them from 6 exposures to 7. This reach-first approach ensures that advertising dollars are spent effectively, reaching as many potential customers as possible while avoiding unnecessary overspending on high CPM slots that do not significantly contribute to overall reach.

In summary, while CPM remains a crucial metric in TV advertising, integrating cost-per-reach into your evaluation strategy can provide a more holistic view of campaign effectiveness and enhance overall ROI.