Developers, advertisers, publishers, ad industry executives all sound off on the importance of eCPMs, but really what exactly is “eCPM?”
If you’re a publisher, you’ll need to measure how well your app is monetizing from the ads you publish. To do this, you use eCPMs. We’ll get into the details shortly, but think of eCPM as the ad industry’s universal standard of measurement, which comes in handy when you’re comparing how well campaigns are performing side-by-side.
What does eCPM mean?
eCPM means “Effective Cost per Mille.” Mille in Latin is defined as 1,000. Since we’re speaking in terms of mobile advertising, eCPM translates to the advertising revenue generated per 1,000 impressions.
The definition is clearer when you break eCPM down to its equation.
The eCPM equation
The first left-hand side of the formula requires that you divide the total advertising earnings you’ve generated by the total number of impressions you've given that advertiser. This result leaves you with how much you’ve earned per single impression, or in other words how much you’ve been paid for displaying one ad one time within your app. But since CPMs are paid out by every 1,000 impressions, you multiply this earning/impression ratio by 1,000. What you’ll get is a number for how much you’re earning on average from your CPM campaign.
Applying eCPMs to the real world
eCPMs is a great measurement tool if you’re comparing the ad performance of each advertiser. For instance, since the AppFlood dashboard will list the eCPMs you’re making next to each advertiser’s name, you can use the eCPM to get a feel for how well users are responding to the ads you're displayed. The higher the eCPM, theoretically the more money you’re making from the advertiser for every 1,000 impressions.
Easy enough right? Not quite.
The problem with eCPMs
eCPMs can be incredibly misleading, so while it’s by all means a great standard for comparisons, it does have its faults.
If you do the math, we can find out where the issue lies.
Let's say you have two advertisers, Papaya and AppFlood.
From the 1,000 impressions that you gave AppFlood’s ads in one week, you made $2.50. The eCPM in this scenario is $2.50.
From Papaya’s 10,000,000 impressions in one week, you’ve earned $10,000. The eCPM in this scenario is $1.
If you were looking at eCPMs alone, you’d be inclined to say, “Hey AppFlood is performing really well. Maybe I should fill my inventory with more of AppFlood’s ads and cut back on displaying Papaya’s ads.” Of course since I've told you how much you’ve earned from each advertiser, you’d think twice about reallocating your ad inventory.
Don’t measure ad performance solely with eCPMs
While eCPM is a tool to keep in your back pocket, keep in mind that an eCPM is simply a comparative metric. The total volume of impressions can drastically affect your eCPM for better or for worse so it’s neither a foolproof standard for measuring your advertiser's performance, nor should you be relying on this metric alone to maximize your advertising revenue. With eCPM in hand, you’ll need to dig into all the metrics at your disposal through AppFlood's dashboard data if you’re going to accurately compare how much you value an advertiser who’s received millions of impressions with one who’s seen thousands.
Looking to maximize your eCPMs? Check out "10 great ways to maximize app eCPMs and revenue."