How to understand CPM and eCPM

  • 17 / 09 / 2021
  • Agata Kapinska
How to understand CPM and eCPM

Moving around the online advertising sphere, you’ve come across many terms and explanations that do not always come in line with one another. At some point you might not be sure what to trust, and to solve that impasse you should always look for the context you move around. Although what those abbreviations hide is fixed, the meaning varies for publishers and advertisers. So let’s start at the beginning and dispel doubts regarding CPM and eCPM, which are the most common metrics in monetization.

CPM – Cost Per Mille (thousand)

Formula:

CPM = (total cost of a campaign/total measured ad impressions) x 1000

Let’s start with an example – if an advertiser pays 50$ for a campaign and the ad receives 50000 impressions then the price agreed on is 1$, because:

CPM = (50/50000) x 1000 = $1

CPM is an advertisers oriented metric. It’s one of the most common cost indicators in digital marketing based on impressions, which occur when a particular advertisement is served on a website. What’s important to acknowledge is that impression is counted whenever a creation responding to an ad request is rendered on the website. That doesn’t necessarily mean the ad has been seen by a user. It might be displayed in the area of a page outside the viewport. CPM is the price of showing a campaign a thousand times under an established condition, which means it states how much it could be paid for an advertisement to appear in one of your placements. In other words, it specifies the price advertisers pay to reach their targeted audience. So as you see, it’s more informative for advertisers since it’s about the price.

eCPM – effective Cost Per Mille (thousand)

Formula:

eCPM = (total ad revenues/total measured ad impressions) x 1000

For an example, let’s imagine two active campaigns – one with CPM of 1$ and the other one 0.60$. If each campaign bought 1000 ad impressions the publisher earned 1,6$ for 2000 impressions. In such a case eCPM is 0,80$:

eCPM = (1,6/2000) x 1000 = 0.80

This one is more valuable for publishers since it shows how much a particular ad slot makes. It’s an average rate gathering bids from multiple advertisers, therefore various ad placements, thus different campaigns’ CPMs. In this case, it’s not about the price but combined earnings from all impressions sold by the publisher. eCPM also could take into account prices of various ad slots in use on your website, which differs in value, and its high rates do not represent potential maximum website revenue.

eCPM’s primary function is to help publishers understand the value of impressions generated by their users in relation to ad slots, or per each format (display, video, native ad), etc. It indicates the worth of ad inventory; therefore it’s commonly used in reporting methods. However, since it’s based on rates paid for diverse formats, it’s not enough for proper ad revenue analysis.

Pieces of a puzzle

As you see, both CPM and eCPM are crucial in understanding your ad revenue. They explain why and how advertisers pay for your ad inventory. That makes them essential for efficient optimization you, as a publisher, should keep running. Although both of the described above metrics are equally important, neither of them is enough. That’s because CPMs focus on units, and revenue is about what your website earns as a whole. No worries though, there is a metric that brings it all together – RPM, and you can find out more about it in our article RPM – an essential publisher oriented metric.

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