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eCPM stands for effective cost per mille and is used to measure and optimize advertising in Google products such as AdWords, AdSense, or AdExchange. eCPM indicates the estimated revenues that can be achieved with 1000 visual contacts by users with a specific advertisement. In other words, what is the cost of one thousand visual contacts with an ad in one medium? And how much revenue can be earned with this ad when 1000 impressions are achieved? This metric can capture the effective sales of a single channel and can be used as an integrated metric for the combination of multiple channels in Google’s advertising networks. As a rule, high eCPM values stand for large sales per ad or ad unit. However, the value can also be used to compare channels and campaigns in order to optimize advertising measures and assess different billing models from a financial perspective.
eCPM is based on a CPM billing model which is an industry standard. The sales of an ad or campaign are calculated using visual contacts. When a user visits a website that is running online ads, a request is sent to the ad server. Depending on the settings (for example contextual targeting or behavioral targeting), a suitable ad will be sent back and rendered in the user’s browser. Only once the user sees the ad, will it count as an impression and be billed according to the billing model. However, the bill must be distinguished from the performance record.
To reliably capture ad performance even on large sites, thousands of impressions are considered instead of individual views. That way it is possible for advertisers to check the results of their advertising measures. eCPM can also incorporate other billing models into its representation by transferring impressions based on clicks (CPC) or actions (CPA) into impressions and displaying them as an integrated value, for example. Some configurations require e-commerce tracking and linking of different Google products.
How it works
The eCPM is calculated as follows:
eCPM = (total revenue / impressions) x 1,000.
The result is the expected sales of 1000 impressions. The special feature of this metric is the comparability of different channels, campaigns, and advertisements. A/B tests with two or more indicators are possible as well as detailed adjustments to the bid strategy using different eCPM values. Google is able to accurately estimate the sales of advertisements, since prices, average clicks, and impressions are known in their auction-based systems. This data serves as a basis for the calculation of the eCPM.
Advertising measures with high eCPM values can be used with preference. Low values suggest an ineffective cost distribution, especially in the case of cross-channel analyses. Either certain ads with high eCPM values can be prioritized, or the ads with low values could be modified to increase their performance. If the prices are determined in real-time (real-time bidding), the eCPM value can be used to optimize sales. This is the case for DoubleClick for Publishers (DFP).
Level control is achieved by selecting minimum eCPM values which serve as a criterion for the delivery of advertisements. These floor rates define minimum prices for inventory to be sold. Minimum bids are set to sell the inventory at maximum profit. Optionally, additional criteria can be set up for campaigns in terms of monetary aspects, mobile devices or country-specific target groups, as is done by the AdMob network for mobile devices. It should be noted that the inventory may not be sold if the eCPM values are too low. A balance between inventory prices and profit is therefore advisable.
If two ads appear in AdWords or AdSense for a defined period of time, eCPM allows a direct comparison:
- Banner one generated 100,000 impressions and an income of 100 dollars. The eCPM is 1.00 dollar.
- Banner two generated 150,000 impressions with an income of 200 dollars. The eCPM amounts to 1.33 dollars. Banner two is therefore more effective than banner one.
In the ad delivery process of the DoubleClick Ad Exchange Network (AdX), Google distinguishes three phases with different eCPM values to handle the requirements of large publishers as well:
- Ad request: Because not all requests result in the delivery of an ad, the number of all requests is included in the calculation of the eCPM.
- Matched request: Because not all ads can be delivered to a buyer, the matching requests are considered. This value indicates what buyers would pay for an ad.
- Ad impression: Since the capture of impressions is sometimes delayed (rendering), the eCPM represents values that buyers paid per impression for ads. This value is a key factor for the determination of a minimum eCPM.
These phases refer to different characteristics of the delivery system. For example, the delivery rate of the advertising network, the latencies when delivered in a network, as well as the relations between ad versions and generated sales. This approach is designed to prevent click fraud.
Relevance to online marketing
The variety of billing models in online advertising makes it difficult to compare between ads, channels, and campaigns in many cases. However, most ad networks now use a version of the eCPM value that refers to impressions or thousand impressions. By means of this trick, different billing models can be translated and evaluated with regard to their performance. However, the complexity of the respective system is initially an obstacle for exact level control. The eCPM values work differently in the different networks, so that the calculation of the eCPM value has to be looked at in detail.
Generally, the more complex the advertising network, the more difficult it is the recording of the most important KPIs and therefore also the optimization. Which advertising networks are the most suitable for which websites cannot be specified in general terms. The turnover of a website can serve as a criterion. Only turnover of a few hundred or thousands of dollars is worth the work, which requires a complex advertising network.
- What is eCPM and how is it calculated? reviveconsultant.com. Accessed on 09/06/2016
- About AdMob eCPM Network Floors support.google.com. Accessed on 09/06/2016
- eCPM in Ad Exchange support.google.com. Accessed on 09/06/2016
- Adx vs AdSense – Should you be on Google’s Ad Exchange? oko.uk. Accessed on 09/06/2016