THE NUMBERS GAME
CPM and Cost-Per-Point are not the same
By Erwin Ephron
The recent industry proposal that spot media change from a cost-per-point to a cost-per-thousand currency measure ignores important differences -- and has competitive implications that go beyond the numbers.
TV and Radio have two standard ways of presenting audience -- as gross impressions, a whole number and as gross rating points, a percent of a marketís population.
The currency measure based on impressions is the familiar Cost-per-thousand (CPM). The currency measure based on coverage is Cost-per-rating-point (CPP). The big difference is a rating point counts only impressions delivered to a specific area, a CPM counts all impressions.
CPP to CPM
Turning a CPM into a CPP is simple. You just have to know how many thousand viewers or listeners are in a rating point. For example if a market has 1,000,000 adults 18+, then a rating point is in-market impressions equal to 1% of that or 10,000. If the cost of buying that rating point is $100 then the CPM is $100/ (10,000/1000) or $10.00. Itís an easy calculation if you know the population of the market the CPP is based on.
CPM to CPP
Turning a CPM into a Cost-per-point is more labor intensive. You first have to find out how many of the mediumís total impressions were delivered to the desired market area. For National TV itís simple. The market is the U.S.
Cost-per-point and Spot Media
Spot mediaís use of cost-per-point isnít an accident, itís the correct currency. Spot is market-specific and Cost-per-point emphasizes this ability to reach specific high value areas.
CPP also simplifies Spot planning. If for example, a brand needs 100 Adult 18+ points a week to achieve a 40 weekly reach goal, buying that is simple. To budget this, the buyer takes the CPP of $100 and multiplies it by 100 and gets the weekly schedule cost of $10,000. You canít do this with cost-per-thousand unless you first convert it to cost-per-rating-point.
Which is the better measure?
The better measure depends on the task. Cost-per-point is the cost of geographically targeted impressions and is most useful for buying spot media like Radio. Rating points are essential for planning weight and estimating reach and frequency for all media.
CPM is the cost of impressions delivered anywhere and is most useful for buying national media and for comparing like media.
But the two measurements also have competitive implications. Media with dispersed audiences like Cable TV look much better on CPM than on Cost-per-point. Their geographic area is large so their audience as a percent of the population is small. That means a rating point costs a lot.
A spot medium like Radio will do better with Cost-per-point than CPM because its impressions are concentrated in a specific market area. †CPM, which counts all impressions, will exaggerate the cost of Radio since Radio impressions delivered outside a market are not usually measured.
And the frequent claim that CPMs are more useful because they let us compare the cost of different media is a myth. CPMís are comparable only for like media.
Fifty years of TV as the most important medium in dollars has given us CPM-ready back room system. In the name of efficiency we would like to use a TV CPM currency measure for all media. That suggests the one measure fits all. It doesnít.
The TV network model is national, other media are local. Advertisers are willing to pay for geographic selectivity when it targets a brandís markets. Cost-per-point is the only appropriate measure of that.
- April 22, 2009 -