Are you currently thinking what is the difference between CPM and eCPM?
This article will strengthen your understanding of CPM and eCPM with specific examples. You will also learn– why these two metrics matter to you as a publisher.
Table of Contents:
- What is CPM?
- CPM Formula
- How to calculate CPM? | Example of CPM
- What is eCPM?
- eCPM Formula
- How to calculate eCPM? | Example of eCPM
- What is the difference between CPM and eCPM?
- Kiwi Storage Example Regarding CPM and eCPM For Publishers
What is CPM?
CPM stands for cost-per-thousand-impressions, or ”Cost Per Mile” on the Google Display Network. CPM is a fixed price advertisers bid or pay for each ad impression multiplied by 1000. For publishers, CPM represents the revenue generated from these 1000 ad impressions. It’s worth mentioning that publishers also use another metric to calculate ad revenue – RPM (‘Revenue Per Mile’), and both metrics– impression RPM and CPM– usually refer to the same concept.
How to calculate CPM? | Example of CPM
Let’s imagine that the publisher earned 1000€ by selling 1M of ad impressions to a particular advertiser. The calculated CPM would be 1€. This means that the publisher will earn 1€ for every 1000 ad impressions he sells to that advertiser.
(1000€ / 1M) x 1000 = 1€ (CPM)
What is eCPM?
eCPM stands for ‘effective cost per mile’ or effective cost-per-thousand impressions. Both eCPM and CPM illustrates the ad revenue generated by the publisher from 1000 ad impressions. The main difference is that eCPM is the average of multiple CPMs. Because many advertisers are bidding on each ad impression with different CPMs, the price is not fixed. eCPM gives you the combined average of all advertiser bids for your ad impressions.
How to calculate eCPM? | Example of eCPM
Let’s imagine that there were two active campaigns on the publisher’s website. One campaign paid CPM of 1€ and the other, 0.20€. Each campaign bought 1000 ad impressions. In this case, the publisher generated a total revenue of 1.2€ per 2000 ad impressions. Therefore, the eCPM is 0.60€ (1.2€ / 2000 x 1000= 0.60€). As you may notice, none of the buyers paid a CPM of 0.60€, but the eCPM metric helps the publisher to understand the average value of his 2000 impressions.
Instead of campaigns, different SSPs or network partners could be monetizing part of publishers’ ad inventory with a different rate of eCPM. Whether you call it eCPM or CPM, it is essential for you to understand and calculate the average value of your sold inventory.
What is the difference between CPM and eCPM?
CPM is calculated by advertisers and eCPM by publishers. CPM shows advertiser’s cost of 1000 ad impressions. eCPM shows how much ad revenue publisher has generated from 1000 ad impressions.
Let us look at one more example.
Kiwi Storage Example Regarding CPM and eCPM For Publishers
Imagine that you have a store that sells kiwis (ad inventory). These kiwis represent ad impressions. Since kiwis can go bad, you want to sell them asap at the highest price possible, so that none will go to waste.
Let’s say you have 10 kiwis in your storage, and each of the kiwi represents 1M ad impressions. In total, this gives you 10M ad impressions.
Since your kiwis are the best in your town, you sold the first 5 kiwis almost immediately for the CPM of 1€. This gave you revenue of 5000€.
(5 000 000 /1 000 x 1€ = 5000€)
Then you sold 4 more kiwis for the CPM of 0.20€, which gave you revenue of 800€ (4 000 000 /1 000 x 0.20€ = 800€). Unfortunately, you couldn’t sell the last kiwi because it went bad.
In total, you sold 9 fresh kiwis and earned 5800€ (5000€ + 800€ = 5800€).
Your eCPM, would be the total revenue (5800€) divided by the ad impressions you sold (9M), giving you an eCPM of 0.64€ (5800€ / 9M x 1000 = 0.64€)
❗Bear in mind that eCPM doesn’t represent the 10M ad impressions you initially had in total, but only the 9M you sold.
This means you earned 0.64€ for every 1000 ad impressions you sold on average.
High CPMs do not indicate higher total revenue. Neither do they represent the overall value of your sold ad inventory. Our examples reveal that publishers have to assess the eCPM in order to gain the full picture. If your average price is higher, then your ad revenue will be higher as well.
Continue to learn about other metrics– rCPM and Fill Rate.