In advertising, Cost Per Point (CPP) is calculated by dividing Gross Media Cost by Gross Rating Points (GRPs). Don’t be fooled by this simple CPP formula. It’s trickier than it seems. And many get it wrong.
The leading cause of CPP calculation errors while media planning is using the wrong number for Gross Media Cost.
Umm Yeah… About Gross Media Cost
Although still frequently used, Gross Media Cost is an obsolete (and illegal-ish) throwback to the Mad Men days of broadcast television and radio advertising.
Back in those days, media was priced in Gross Media Cost, which includes the advertising agency commission. The “industry standard” commission was 15%. For example, if the media supplier wanted to receive a payment of $17,000 (the Net Media Cost), they would have to “gross up” the cost to $20,000 to include the standard 15% commission ($3,000).
The agency would invoice the advertiser the Gross Media Cost of $20,000. Upon payment, the agency would pocket the $3,000 commission, then pay the remaining $17,000 to the media supplier.
An inconvenient problem with this arrangement arose when the US Department of Justice deemed the “standard 15% commission” to be illegal because it is anti-competitive. For more on this see Gross Media Cost vs. Net Media Cost.
Despite this inconvenience, Gross Media Cost is so baked into media buying procedures, systems, and calculations, it is still used today. Like many things in life, we just have to deal with it. Blame the Boomers.
Going from Net to Gross Media Cost
Nowadays, most media is priced out in Net Media Cost. The agency fee is either added on top as a commission on Net Media Cost (rarely 15% these days) or charged separately as an hourly rate or other compensation method.
So, how do we go from Net Media Cost to Gross Media Cost? This calculation is called “grossing up” the media. I agree, it’s gross. 😂 Anyway…
Thankfully, the calculation is easy. You simply divide the Net Media Cost by 0.85.
Why 0.85? That’s 100% minus the 15% “standard commission.”
Using our earlier example, the media supplier has a Net Media Cost of $17,000. So, the Gross Media Cost is $17,000 ÷ 0.85 = $20,000. Voilà!
Gross Ratings Points
Gross Ratings Points – or GRPs – is another Mad Men Metric used in broadcast television and radio. Some relicts try to use GRPs for other media channels… not a good idea.
The goal of GRPs is to measure the impact of a media placement. Although this goal is admirable, let’s be honest – it’s not the best metric. Reach and Frequency are better. But again, it’s so baked into advertising we just have to deal with it.
Start With Ratings
Ratings measures the share of population reached by a given advertising vehicle. For example, if WJOE reaches 2,300 people out of a population of 100,000, it reaches 2.3% of the population. The rating is commonly expressed without the percent symbol (multiplied by 100). In this example, the rating is 2.3.
It’s important to know, like seemingly everything in advertising, there’s a lot of nuance to ratings. When someone says “reaches 2,300 people” you should ask “over what time period?” Read the fine print on the ratings to understand this. For example, in radio the time unit is AQH or “Average Quarter Hour.” This means the average number of people listening during a typical 15 minute period (quarter hour) during the given daypart.
Then Multiply by Spots
When advertising on television or radio, you typically broadcast (or “air”) your advertisement a number of times. Each broadcast is called a “spot.”
To Calculate your Gross Ratings Points, multiply your Ratings by the number of Spots.
For example, if you ran 20 spots at a rating of 2.3, your GRPs would be 2.3 × 20 = 46 GRPs.
Finally, Cost Per Point
Now that we know Gross Media Cost and Gross Ratings Points, we can finally calculate Cost Per Point. Yay!
As mentioned earlier, Cost Per Point (CPP) is calculated by dividing Gross Media Cost by Gross Ratings Points.
For example, if the Gross Media Cost is $20,000 and the Gross Ratings Points are 46, the Cost Per Point is $20,000 ÷ 46 = $437.78.
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