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Even in an era where most industries and businesses rely on too many acronyms, digital advertising may take the cake.
CPM, eCPM, RPM, CTR, KPI … what does it all mean?
Today we’re breaking down the most basic of ad tech acronyms. The one that lays out how you earn money, how partners value your inventory, and how we optimize that inventory: CPM.
What is CPM?
The definition of CPM is simple. CPM stands for cost per mille (cost per thousand), or the unit used to define the price of 1,000 ad impressions. For example, if an advertiser pays a $2.25 CPM, that means they’re willing to pay $2.25 for every 1,000 times an ad is shown.
“Why isn’t the price per ad? Why per 1,000?”
If we use the same $2.25 CPM example, this would mean each of those 1,000 impressions would have cost the advertiser $.00225 cents. Multiplying that by 1,000 makes for a more standardized and useful measurement tool.
How does Mediavine use CPM?
Think of CPM as a pricing tool. On a broad scale, Mediavine uses CPM to set pricing with our ad partners.
We set floors with those partners, giving them a minimum price, or reserve price, that they must pay in order to buy ads on your site. We have the ability to tweak this pricing depending on the ad unit, ad type, device type or geographic origin of traffic. And that’s CPM advertising in a nutshell.
What is eCPM? Is it the same thing?
It’s not the same, although it is related: Whereas CPM is a pricing tool, eCPM is more of a measurement tool.
Translation: Mediavine uses eCPM to better understand the revenue potential of each ad unit on a page.
There are many different interpretations online, but for our purposes, this definition is the most relevant.
eCPM stands for “effective cost per mille,” or thousand.
Effective CPM takes into account every opportunity to serve an impression, whereas CPM is based only on impressions that were actually served on the page.
We calculate this by taking the CPM of sold impressions and multiplying them by the fill rate, taking both of these factors into account in order to maximize revenue potential.
For example, if you have an ad unit with sold impressions averaging $1.00, and the fill rate of that ad unit is 90%, you would calculate it as follows:
$1.00 (cost of sold impressions) * .90 (the percentage turned into a decimal) = $0.90 eCPM.
How Does Mediavine use eCPM?
So. Many. Ways.
One of my personal favorite examples is how we use eCPM to measure the effectiveness of ads due to seasonality.
During higher demand months and quarters, eCPMs tend to be higher as advertisers are paying more per ad.
At the same time, market competition for that ad is also higher, leading to higher fill rates across the board.
This data helps us identify trends which allow us to optimally price ads so both CPM and fill rate are optimized.
In broader terms, eCPM also gives us a jumping off point for further investigation into possible website issues.
For example, if an ad unit has a great CPM and a high fill rate, it tells us that the ad unit is likely placed properly.
In turn, the advertisers bidding on that unit are generally finding value in that site’s audience and ad placement.
On the other hand, if an ad unit’s CPM is hovering near our floor pricing with a lower fill rate, that’s a red flag.
This could signify an issue with the ad placement, viewability, brand safety, technical problems or other factors.
Given the sheer volume of ad units, exchanges and publishers we work with – more than 6,400 as of March 2020 – the uses of eCPM data are nearly infinite, and infinitely valuable.
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