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The Net Takeaway: eCPM: Why call it this?


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eCPM: Why call it this? · 01/04/2008 02:49 PM, Analysis Marketing

We were again asked to calculate “eCPM” for an advertiser, and I had to blow off some steam. Why? Well, how about some definitions:

CPM = Cost per thousand impressions. This is a standard media term, where you pay for 1,000 “views” of an ad. In traditional media, its guestimated from ratings or subscr/sales numbers, but online, its actually impressions served. Note that the ad may run for millions of impressions, but its priced at the “cost per thousand”, just like we sell gasoline in gallons (or liters). M is for “mille”, Latin for 1000, via Wikipedia.

Average CPM = the summed average of the CPMs for the various pieces of the media buy. For example, you may want to buy some impressions in an expensive area of a site, then spend the rest of the budget on some impressions in a cheaper area. The average is a straight average (10,000 imps at $3 CPM + 1,000,000 at $0.50 CPM is the buy, so add the imps, add the costs, divide it up, and average CPM for this one is $0.525) which is implicitly weighted by the size of the lines in the buy.

eCPM = Google has a nice summary at eCPM — What Exactly Is That?. Basically, its the (earnings / impressions) X 1000. Aka “effective” CPM.

The problem? Well, eCPM is a metric for a publisher to understand how well a position might deliver revenue for their site. Google provides this since AdSense doesn’t let you set your cost for a position; its really what the market bids for it. But you may find that certain positions do better for you than others, so you could drop poor performing placement locations and have a cleaner site. You can’t just look at the raw dollars delivered since traffic is a cap on the number of clicks you can get to drive revenue for a CPC ad publisher.

Here’s the problem: advertisers have asked for eCPM calcs for their ads. What the heck is this?

I don’t really know. If we use the conversion data from the advertiser, we can show (conversions/impressions) x 1000… but what the heck is this? It’s like “Value per 1000 impressions “, or “revenue per 1000 impressions”... but its not cost per CPM. And many advertisers have no direct sales metrics, so what do they want for the “earnings”? Some made up number?

Some sites make a valiant effort to define this for advertisers. For example, says “For Advertisers, eCPM is the maximum dollar amount they’re willing to pay per 1000 Ad impressions.” But that’s not really what the advertisers are asking for.

What should they be asking for? Well, we can make it a cost metrics… there are lots of cost per clicks or cost per conversion calcs. We can make it a value metric, and make it profit or revenue, and even make it LTV to account for repeat customer value over time all stimulated by the initial buy…. but asking for “eCPM” because they saw it on a Google dashboard is just a waste of time.

Metrics have meaning and value. Let’s call them what they are, and understand what they mean. Don’t just pick one out of the air and try to force it into a realm. eCPM has really no meaning to advertisers, so ask for what you really want and analysts will find the appropriate metric and deliver it.

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  1. eCPM

    Lisa    Nov 18, 05:52 PM    #

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