How exactly is CPM figured

My Business partner and I are just starting a Digital Billboard company. We are positioning approx. 7’X12’ True 16MM boards back to back on slower business roads, within about 30 feet of the highway. We are going to charge $895 per 4 week period at our first location for each of 7 advertisers on each side, each being displayed for 8 seconds. I have two questions. First, there are 21,000 vehicles passing by this site daily. Do I use the total traffic count to figure the CPM, which would be about $1.52. In reality, only half those consumers are going to see one side of the sign, should I therefore use 10,500 as my daily traffic count, making the CPM $3.04. If I want to be even more accurate I need to assume that only 2 or 3 ads will be seen by each passing vehicle. Does this mean I should be telling my prospects the CPM is even greater? How are the big operators arriving at there CPM’s? Secondly, does the smaller size of our boards dictate that a lower rate is charged? I don’t want to be starting out with a rate that is too low. Any advice would be greatly appreciated. By the way we are in Pennsylvania and our boards are to be delivered the last day of this month so I need to be out there selling space. I did go out selling one day before we ordered the signs and was happy with the feedback and in fact did sign one client at $895. Thanks.


CPM stands for “Cost Per Thousand Exposures”. The use of CPM is very inaccurate – it always has been – as everybody cheats on how many people actually see the ad. The standard rule of thumb is to sway that the average car carries two people, so a 20,000 24 hour traffic count means 10,000 cars going each way over 24 hours x 2 people per car = 20,000 views per day each way. But, obviously, there are flaws with this argument. First, a 24 hour count would only work if the sign was lighted 24 hours, which they are normally not. However, the traffic after midnight (which is when most lights turn off) is very low, so it is not entirely mathematical on how much less traffic you would have. And, obviously, nobody knows how many people are actually in each car nor how many actually look at the sign. But before you think that billboard companies use bad data, you should check out the CPM numbers that newspapers and magazines use. They go by magazines printed and shipped – but there’s no guarantee if anyone reads the magazine or sees the ad, or how many people read it. The bottom line is that CPM is very flawed and not much of a help except for basic apple to oranges macro differences in cost.

The only real way to figure out the correct rate is, as you are doing, trying to sell the space and getting customer feedback. Also, remember that the "quality’ of the traffic is as important as the “quantity” of the traffic. Advertisers would rather hit fewer upscale customers than a ton of customers with no disposable income.