What is Dynamic CPM?
You’ve probably seen the term CPM countless times throughout your career as an advertiser. But nowadays, paying a flat rate for impressions isn’t always enough to maximize your ad spend.
Instead, a dynamic CPM (dCPM) strategy can ensure every dollar you spend has the potential to go further. Let’s review the basics of CPM and how dCPM can change how you bid for attention.
What is CPM?
Before diving into dynamic CPM, let’s review CPM. CPM, or cost per mille, is the price an advertiser pays for 1,000 impressions of an ad. To find CPM, divide the cost by impressions and multiply by one “mille” or thousand. For example, a $1.75 CPM means you pay $1.75 for every 1,000 impressions of your ad.
CPM is a very traditional online marketing metric in which companies pay for views of their advertisement. CPM is generally favored for brand awareness campaigns where the main goal is to reach a large audience rather than drive clicks or conversions.
What is the Difference between Fixed CPM and Dynamic CPM?
Now that we covered CPM, it’s important to know the differences between fixed CPM and dynamic CPM.
Fixed CPM, often referred to as direct or guaranteed advertising, is a pricing strategy where ad inventory is sold at a set rate based on a predetermined agreement with an advertiser. This involves negotiating a fixed price for ad space, typically influenced by factors like audience size, quality, and demographics, and committing to delivering a certain number of impressions over a specified period of time. The advertiser pays the agreed amount, regardless of how the campaign performs, thus establishing a reliable and predictable revenue stream for publishers from ad inventory.
The main difference between fixed and dynamic is that dCPM fluctuates based on real-time bidding (RTB). So, instead of setting a flat impression rate, dCPM adjusts costs dynamically based on factors like audience behavior, demand, and ad performance.
As we explained earlier, fixed CPM works by advertisers paying a predetermined price per thousand impressions. This often results in wasted ad spend if those impressions aren’t reaching the right audience. Dynamic CPM addresses this issue by using real-time data to adjust how much an advertiser should bid for an impression based on its potential value.
How Does Dynamic CPM Work?
Dynamic CPM is a common bidding and pricing strategy used in programmatic advertising, an automated process in which publishers sell ad inventory to advertisers via an auction that takes place while the publisher page is loading.
You might be wondering, what technology goes into this process? Well, dynamic CPM is enabled by data and machine learning technologies. Taking AdRoll’s BidIQ, our AI-powered bidding and optimization engine, as an example, it is trained on billions of data points to predict an optimal bid taking into account the user’s online actions, contextual data such as the publisher website, campaign objectives and budget, and auction competition. Its prediction model enables BidIQ to optimally price bid opportunities in milliseconds.
What Factors Influence the Dynamic CPM Rates?
Audience Behavior
Several factors determine dynamic CPM rates. One main factor is audience behavior. Using historical data, a bidding engine learns which user activity is more likely to lead to an ad click or a conversion. It uses this information to bid more on users that have exhibited such actions.
For instance, if a consumer exhibited actions that signal their interest in buying a reusable water bottle, water bottle companies can leverage dCPM to place a higher bid to display their ads to that particular consumer. This way, their ad is shown to the right person at the right time with the right messaging. This scenario also highlights the importance of ad placement. High-visibility formats like videos, popular websites, apps, and other prime “real estate” such as above-the-fold ads result in higher dCPM rates.
Market Competition
Market demand, competition, and ad frequency also influence dynamic CPM rates since advertisers often bid against one another to reach their target audience.
Ads are usually bought through first-price auctions where the winner is the bidder with the highest bid price and they pay what they bid. In this environment it would be wasteful to bid a lot if you somehow knew you were the only bidder. The best bid in such a scenario is the lowest possible amount that you can bid, based on the policies set by the ad exchanges or the publishers. On the other hand, if an impression is valuable to you and you know there are a lot of other parties bidding, it makes sense to bid high so that you win this valuable impression. Winning this impression with any bid that is lower than your valuation for it is a net positive. The process of figuring out how much to bid to maximize value in a first-price auction is known as bid-shading. Bidding engines, such as AdRoll’s BidIQ, use machine learning to learn typical winning bid prices and use that information to bid-shade optimally to make sure you win the impressions that are valuable to you without over paying when you don't need to.
The most obvious example of a period of high market competition is the holiday shopping season. With dynamic CPM, the bidding price will be adjusted automatically based on the change of competition, as well as the audience behavior.
Other Factors
Other factors include geography, trends, and even time of day or week, which can impact the cost as advertisers adjust bids during peak hours for their target audience. These factors are crucial to remember since first impressions have higher value, while repeated exposure, aka ad fatigue, can lower engagement.
Keep in mind that campaign objectives and the quality of ad creative matters. Performance-driven campaigns focused on conversions often tolerate higher dCPM rates, while the relevance and quality of the ad itself can boost engagement, leading to more competitive bids.
Benefits of Dynamic CPM
Dynamic CPM brings an optimal approach to ad pricing, enabling advertisers to meet diverse campaign goals efficiently. Here are some of the main benefits from using dCPM.
Performance. At the end of the day, the ultimate objective for an advertising campaign is maximizing return on investment (ROI). Dynamic CPM allows advertisers to price an advertising opportunity dynamically based on expected return of the specific target audience, according to the campaign conversion goal. Effective dynamic CPM bidding is key to maximizing campaign performance.
Transparency. Dynamic CPM pricing encourages transparency, providing clear insight into campaign performance and optimization. For example, it allows AdRoll to closely align with each of your specific objectives and adjust campaigns to meet your unique requirements. Because of its transparency, we can be open about the inventory used, allowing you to understand exactly where and how budget is spent to achieve the best possible outcomes.
Flexibility. A pricing model shouldn’t dictate campaign goals. Dynamic CPM gives you the flexibility to appropriately target all audiences for all types of campaigns. It enables advertisers to run a variety of campaigns to target a wider audience, and adjusts when those campaigns optimize over time to meet a range of advertising goals. Don’t get stuck paying a fixed price for impressions that might not go anywhere, take advantage of fluctuating demand or seasonal trends with dCPM while staying within budget.
Make a Good First Impression
Dynamic CPM lets advertisers rest easy knowing their ad spend aligns with the actual value of each impression, targeting high-value audiences without overspending on less relevant ones. You can improve the efficiency of your budget and save time since you no longer need manual CPM optimization.
That’s why AdRoll uses the dynamic CPM model for buying inventory so that we can maximize your campaign ROI. With AdRoll, we provide the tools to reach your highest value audiences with lowest costs possible. Learn more why AdRoll is the right platform for you.