COST-PER-THOUSAND (CPM) AND COST-PER-POINT (CPP)

Cost-Per-Thousand (CPM) And Cost-Per-Point (CPP) are two methods of evaluating media efficiency. CPM is a ratio based on how much it costs to reach a thousand people. CPP is a ratio based on how much it costs to buy one rating point, or one percent of the population in an area being evaluated.

Cost-per-thousand is calculated by using the following formula:

                Cost of advertising schedule purchased CPM =
                Gross Impressions 1,000

Cost-per-point is calculated by using the following formula:

               Cost of advertising schedule purchased
CPP =
               Gross Rating Points (GRPs or "grips")

Some explanations: The area being evaluated might be a country such as the United States or a television market such as New York. The major networks cover virtually all of the United States, and their audiences are measured by A.C. Nielsen, the company that provides television networks, television stations, and advertisers with the audience measurement, or rating, information.

Television markets typically cover an area inside a circle with a radius of about seventy-five miles from television stations' transmitter sites plus those homes reached by cable television systems that carry local TV station signals. Such an area is referred to as a Designated Marketing Area, or DMA, by A.C. Nielsen. DMAs can encompass several counties and many cities, and are usually designated by the largest city in the area. Hence, the New York market includes Newark in New Jersey, Long Island, White Plains in New York, and Stamford in Connecticut.

The average television network program achieves about an 11.0 rating, which means it reaches eleven percent of the 94,000,00 homes in America with television sets, or approximately 10,300,000 homes. If an advertiser were to buy ten commercials each with a rating of 11.0 on a network (ABC, for example), then it would make 10 times 10,300,000, or 103,000,000, Gross Impressions. If ABC charged an average of $150,000 per 30-second commercial (the typical television commercial length), the total cost of a ten-commercial schedule would be $1,500,000. The CPM of the schedule would be:

               $1,500,000
CPM =
               103,000 (103,000,000 Gross Impressions                1,000)

CPM =     $14.56 (the cost of making 1,000                impressions)

Advertisers and their advertising agencies and media buying services evaluate television networks based on CPM because it is a good comparative measure of media efficiency across several media. Thus, the efficiency of reaching 1,000 viewers with the above theoretical schedule on ABC could be compared, for example, with how much it cost to reach 1,000 readers with an ad in Cosmopolitan.

There are two primary buying methods, or markets, in which advertising time is purchased on network television These are referred to as the upfront market and the scatter market. The upfront buying market is usually active in the spring of each year. Advertisers place orders for commercials that will appear in television programs run during the television season beginning in the fall of each year. By buying in advance and committing for a full network season (which runs until the second week in April), advertisers are given lower prices than they would pay in the later, scatter, market. The scatter market is active at a period much closer to the actual time the advertising is to appear. Advertisers may purchase time in September, for example, in order for their ads to run during a fourth-quarter schedule, from October through December.

The networks give advertisers CPM guarantees for buying in the upfront market. If a network does not deliver the guaranteed ratings, it will run free commercials, called make-goods, to make up the rating shortfall.

In the past, CPMs for television networks have been based on homes, or households (HHs). The use of newer technologies such as VCRs and cable television networks, however, has increasingly fragmented the television audience. Recognizing this change, advertisers to tended to evaluate and compare network schedules based on persons reached rather than on HHs. Even more specifically, they have based their analysis and spending on numbers of persons within demographic groups. The two most desirable demographics for advertisers are women 18 to 49 and adults 25 to 54.

Advertisers evaluate local television stations based on Cost Per Point (CPP), because the method provides a good comparative measure of media efficiency within a broadcast medium. Rating points are also used by advertising agency media departments as a planning tool to make very rough estimates of how many times an average viewer might be reached by a particular advertisement placed within the television schedule. For example, a media plan might call for 300 rating points to be purchased in a television market with the hope that 100% of the viewers in the market might see a commercial three times (a frequency of three). Thus, using rating points and CPP serves both an evaluative function and a planning function.

-Charles Warner

FURTHER READING

Warner, C. and Buchman, J. Broadcast And Cable Selling. Belmont, California: Wadsworth, 1993.

Webster, James G. and Lawrence W. Lichty. Ratings Analysis: Theory And Practice. Hillsdale, New Jersey: L. Erlbaum, 1991.

 

See also Ratings; Share; Market