Businesses leverage multiple marketing strategies to advertise their brands, from social media to traditional marketing….
The devil is in the details, and if you’re planning an advertising budget for out-of-home (OOH) or place-based media, you best pay attention to details such as Cost Per Point (CPP).
CPP is a staple metric used in advertising and is heavily referenced for OOH billboard advertising, TV, and radio media buying. It’s essentially an approximation you can use to plan out your budget, and when used with other metrics, can help you make adjustments to your overall strategy.
So what exactly is CPP, how do you calculate it, and where would it fit into your advertising strategy? Let’s find out.
What is Cost Per Point (CPP)?
According to the Out of Home Advertising Association of America (OAAA), CPP is defined as “the cost of advertising exposure opportunities that equals one rating point in any geographically defined market.”1
While succinct, this definition might not be practically useful. In layman’s terms, CPP—also called Cost Per Rating Point—gives you the cost of reaching 1% of your target demographic. In other words, it’s the cost of a single rating point, which is, by definition, 1% of your target market.
How to Calculate CPP
CPP calculation is straightforward and can be easily determined using the following equation:
CPP = Media Cost ÷ Gross Rating Points (GRP)
To be sure you’re executing this equation accurately, you’ll need to have a better grasp of the following terms:
- Media cost – This will equate to the overall ad cost of the OOH media.
- Gross Rating Points – GRP refers to how many in the intended target population are exposed to the media.
GRP, in turn, is calculated by multiplying media reach by its frequency.
Essentially, GRP gives you a numerical value that tells you how much of your target audience can actually see your ad—and how many times. For example, if you estimate 20% of your target audience will be exposed to a single billboard (reach), and you deploy three billboards (frequency), the value of your GRP will be 60:
20 (reach) x 3 (frequency) = 60 GRP
Putting it all together, let’s say you have a total media budget of $25,000 for three billboards. Using the same reach estimates above (20%) means you can calculate CPP as follows:
$25,000 (media cost) ÷ 60 (GRP) = $416.67 CPP
Ultimately, within your budget of $25,000, you spent a little under $417 to show your message to every 1% of your intended audience.
A Note on Media Cost
You might come across a slightly different metric than media cost, namely “gross media cost” or “net media cost.” That’s because, a few decades ago, during an era when broadcast TV and radio dominated advertising, CPP was calculated using gross media cost:
- Gross media cost is essentially how much a TV or radio ad costs in total, plus a 15% commission for the media agency that facilitated the placement.
- This 15% fee was eventually phased out, being rendered illegal as an anti-competitive industry standard. However, gross media cost had become so ingrained into advertising metrics that it remained as a piece of outdated terminology.
Media cost typically refers to net media cost or gross media cost—minus the obsolete 15% commission. Nowadays, media agencies use many different pricing methods, and for some (such as performance-based commissions), it wouldn’t make sense to bundle fees on top of the actual CPP calculation media cost.
Use CPP to Adjust Your Strategy
The CPP formula marketing teams use to weigh options isn’t meant to be used in a vacuum. After all, CPP tells you the advertising cost of putting your message in front of 1% of your target market, but it can’t tell you if they actually acted on your ad campaign.
The value of CPP is in measuring the cost efficiency of a campaign or media type. You can see for yourself how CPP can direct your strategy using the example above.
Then, you can use the data you’ve gathered as a side-by-side comparison to inform your next move. Consider the following:
- Scenario #1 – What if you use two billboards instead of the three mentioned above? In this case, your CPP will work out to $625, meaning it’s less cost-efficient to expose 1% of your target audience to your messaging using fewer billboards.
- Scenario #2 – What if you used a different OOH media with a different reach? Let’s say you can buy nine elevator placements at $10,000 with a reach of 40%. That works out to a CPP of $27.78.
Whatever is the most cost-effective for your purposes will depend on your messaging, budget, and goals, among other considerations. Calculating the CPP gives you an approximation you can then use to compare and contrast how much value you can potentially gain from place-based media buying. With that being said, you can also combine CPP with other advertising metrics such as Geopath OOH ratings and Daily Effective Circulation.
Maximize Your Reach with True Impact Media
Now that you’ve mastered the concept of Cost Per Point and how to calculate it, it’s time to put it to the test with an OOH advertising campaign. From airport and taxi advertising to traditional and digital OOH, True Impact Media offers an assortment of advertising mediums to fit the goals of your unique project.
Plus, we don’t just help you get your message out. We offer flexible planning tools and in-depth campaign analytics so that you can optimize your reach and make adjustments where needed.
With millions of outdoor advertising spacing, which one will you choose to relay your message? Start building your campaign with True Impact Media.
- OAAA. OOH Glossary of Terms. https://oaaa.org/AboutOOH/OOHBasics/OOHGlossaryofTerms.aspx#c
- The Balance Small Business. How to Calculate Cost per Rating Point (CPP). https://www.thebalancesmb.com/cost-per-rating-point-cpp-2295460
- Digiday. WTF is a GRP?. https://digiday.com/marketing/what-is-a-grp-gross-ratings-point/