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eCPM is one of the metrics that everyone, including media, advertisers, and ad agencies, recognizes as one of the metrics most commonly used to analyze performance and potential, in terms of revenue (or advertisers’ costs), that an advertising network can offer. eCPM is a useful tool to calculate the cost of a particular advertising campaign from the advertiser’s side and the revenue on the publisher’s side. It can also be a helpful comparative benchmark for assessing the relative profitability of advertising campaigns of different models. All of these reasons illustrate why eCPM is one of the most versatile standard metrics within the digital advertising industry.
eCPM means “effective Cost Per Mille”, where mille in Latin means 1000. Translated into marketing language, it means the cost of generating a block of one thousand impressions. In other words, what the advertiser or the advertising network is going to pay for every thousand times their ad has been shown. Or, what the publisher will earn for every 1000 impressions displayed. For example, if the eCPM of an ad unit in a specific format is $2, it means that for every thousand impressions you’ll get $2 if you are a publisher.
eCPM = (Revenue generated / Number of impressions) x 1000
Let’s see with an example:
Suppose that thanks to Tappx your app has generated $3000 in a week with the 5,000,000 impressions that you have served. In this scenario, your eCPM would be $ 0.6. We obtain it by applying the formula:
(3,000 / 5,000,000) * 1,000 = 0.6
With the eCPM metric we can also compare the performance of 2 advertising blocks and decide which one is best for you.
Suppose that in your app, you try a rectangular banner that has earned you $ 2.5 thanks to the 575 impressions it has generated. You also test an interstitial format that reports you $1.9 for 345 impressions.
Which of the two formats is the better option? The formula of the eCPM would help us to make this decision. By calculating the eCPM, we discover that the interstitial format averages more income per impression, making it the more more advantageous.
eCPM rectangular banner = 4.3 vs interstitial eCPM = 5.5
Also, the eCPM can also be useful as a comparative metric. Let’s say that our app works with advertising campaigns under different models: CPC (cost per click) and CPI (cost per installation) and we want to know which type of campaign is more profitable for us.
Campaign A to CPC: 0.6 $ CPC, with 150,000 impressions and a CTR of 0.4%
Campaign B to CPI: $ 5 CPI, with 100,000 impressions and 12 installations
To calculate the eCPM of each campaign we only have to apply the following formulas:
eCPM A = CTR * CPC * 1000 = (0.4% * 0.6 * 1000) = 2.4
eCPM B = (CPI * I / Imp) * 1000 = (5 * 12/100000)*1000 = 0.6
Thus, we can deduce that the CPC campaign would give us higher potential revenues.
All in all, it is advisable to use the eCPM as a comparative metric because of its versatility when examining the performance of your blocks and advertising models that you work with. Alternatively, use it to estimate your income if you have a recurring and constant flow of users or as comparative metric in a negotiation.