6 Things Every App Developer Should Know About eCPM
One of the biggest mistakes that indie application developers are making in their app monetization strategy is focusing primarily on eCPM. Very often we see app developers using eCPM as a key metric for performance analysis of ad networks, ad formats and ad inventory. It is very important to understand what eCPM actually is, and how to use it properly. Otherwise it can cost you money. Literally.
1. How eCPM was born
The Search Engine Marketing Professionals Organization (SEMPO) defines eCPM as: ::A hybrid Cost-per-Click (CPC) auction:
(CPC x CTR) x 1000 = eCPM.)
This monetization model is used by Google to rank site-targeted CPM ads (in the Google content network) against keyword-targeted CPC ads (Google AdWords PPC) in their hybrid auction.
If you have ever wondered how ad network auctions work, this explains its core mechanism in few sentences.
2. eCPM is about costs. Not revenue.
eCPM is short for Effective Cost Per Mille. Mille = one thousand impressions, in Latin mille means thousand. It is a calculation of actual cost for advertisers ona CPM basis (instead of a CPA, CPC, CPI etc basis.). It is not a calculation of publishing revenue. More appropriately named metrics would be RPM (revenue per mille).
RPM = (Revenue / Number of impressions) * 1000
3. Why is RPM known as eCPM
Guys with the money (advertisers) cared about eCPM only, so publishers who were in communication with advertisers adjusted their language so much that they took over this metric to measure own revenue. Right now you can see eCPM as revenue metric in almost every ad network (web and mobile).
4. But! RPM = eCPM
Not only is the term “eCPM” not appropriate to use as an ad revenue metric, but the two metrics are not equal at all. Since eCPM is used at the advertiser’s side, their cost is often much higher than RPM from the publisher’s side. Usually there is an ad network or ad agency in the middle, and they take approximately 30%, with the result that RPM is usually 30% less than eCPM.
5. Relying on eCPM in this case is misleading
eCPM became so popular among web and mobile publishers that it will probably stay with us for a long time. But, if you want to have detailed statistics about both ad networks and ad inventory, neither eCPM nor RPM is enough to rely on. Fill rate is missing in the whole picture, and its absence often misleads app developers in defining their monetization strategy.
If an app publisher delivers 100 000 ad requests to a certain ad network X, and this ad network only has a 45% fill rate, then only 45 000 impressions will be served. The other 65 000 ad requests are lost (in terms of traffic and potential revenue). Relying on eCPM in this case is misleading. If your ad network pays $12 eCPM but only has a 45% fill rate, then you are not monetizing the remaining 55% of your traffic. In this case ad revenue would be $540.
45 000* $12 / 1000= $540
The same revenue would be achieved with another ad network Y that pays $6.35 eCPM but provides an 85% fill rate:
85 000 * $6.35 / 1000 = $540
That is why you need metrics that can measure your revenue based on ad requests and not based on ad impressions, this metric is called Ad request RPM.
6. Ad request RPM is the new eCPM
Ad request revenue per thousand impressions (RPM) is calculated by dividing your total earnings by the number of total ad requests you made, then multiplying by 1000.
Ad request RPM = (Revenue / Number of ad requests) * 1000
Ad Request RPM for both Ad Networks X and Y will be $5.4 :
$540 / 100 000 * 1000 = $5.4
Currently, only AdMob gives such information, so I strongly recommend you to consider it while analyzing your ad revenue and ad inventory performance. Unfortunately, some mobile ad networks provide neither fill rate nor Ad Request RPM, so in these cases the best thing you can do is to contact your ad network and ask them to include the required metrics for more transparency. It is in your own interests..