With the rocketing success of online businesses, digital advertising has become a pillar of the business world. But to ensure digital ads’ efficiency and reach the target audience, advertisers and publishers should learn about many field-related metrics.
An advertiser is a business owner who wants people to know about their products via ads, while a publisher is a company or a person who has a website or social media platform that features the advert.
When an advertiser initiates an ad campaign, they should be able to measure its effectiveness. This is where CPM and eCPM come to play. They’re essential metrics in digital advertising, but people tend to confuse them.
In this blog post, we’ll discuss the ever-famous comparison of eCPM vs CPM.
- eCPM is an abbreviation for effective cost per mille and is a publisher metric that determines the ad revenue generated from a thousand ad impressions.
- CPM means cost per mille and is one of the pricing models for online ads, which measures the number of times an ad pops up on a site but doesn’t tell whether anyone clicked on it.
- The difference between CPM and eCPM is that while CPM focuses on the cost of an ad per thousand impressions, eCPM focuses on the revenue a publisher generates from thousand ad impressions.
eCPM vs CPM in a Nutshell
Here’s a side-by-side comparison of eCPM and CPM.
|Stands for cost per mille||Stands for effective cost per mille|
|Applies to advertisers||Applies to publishers|
|CPM = (cost of campaign/ ad impressions) * 1000||eCPM = (total revenue/ ad impressions) * 1000|
|It’s the amount an advertiser pays to publish their ads per 1000 impressions||It calculates the effectiveness of a campaign, channel, or ad format|
Now that you know the key differences between the two metrics, it’s time to dive into more details.
CPM means cost per mille. Mille is a Latin word for thousand. When used in digital marketing, CPM is the cost advertisers pay publishers when their ads hit one thousand impressions.
CPM is one of the pricing models for online ads. Other models include CPC (cost per click) and CPA (cost per acquisition). But although CPM measures the number of times an ad pops up on a site, it doesn’t tell whether anyone clicked on it.
CPM is specific to advertisers, not publishers. It helps them know whether the ad campaign reaches the target audience and whether the platform is best for publishing their ads.
We expect ad impressions (views) to increase if a website gets high-quality traffic. As a result, advertisers will have no problem paying large amounts of money for ad placements on such sites.
How to Calculate CPM
When setting up ad campaigns, advertisers should first decide on a budget. After that, they should decide on the target audience. This is because ad networks suggest the number of ad impressions you should expect based on the money you’re willing to pay and the audience you want to reach.
To calculate CPM, here’s the equation you should use.
CPM = (total ad placement budget/ total ad impressions) * 1000
Here’s an example of how to calculate CPM.
Let’s say your budget for the campaign is $100, and the ad gets up to 5,000 impressions. This means the cost per thousand impressions will be $20.
($100/5000) * 1000 = $20
This rate enables advertisers to determine how much they should spend to reach more potential customers.
eCPM is an abbreviation for effective cost per mille. It is a publisher metric that determines the ad revenue generated from a thousand ad impressions. If CPM determines how much advertisers will pay for a campaign, effective CPM will determine how much ad revenue the publishers will earn from that investment.
How to Calculate eCPM
To calculate the effective cost per mille, here’s the equation you should use.
eCPM = (total earnings/ total ad impressions) * 1000
Here’s an example of eCPM calculation.
Let’s say your website generates 20,000 ad impressions daily, and the total revenue generated from ads is $100. The eCPM will be $5.
($100/20000) * 1000 = $5
This implies that advertisers are paying $100 to you (the website owner) to publish their ads. Also, you’re earning $0.005 per ad impression.
Assuming the site traffic remains the same for 30 days and ads get 20,000 impressions at $5 eCPM. This means your total ad revenue will be $3000.
($3000/ 600,000) * 1000 = $5
A publisher can use eCPM to compare site performance, ad formats, campaigns, or channels. For example, suppose you published Google ads and Instagram ads targeting the same audience.
- The Google ads got 20,000 impressions, and your total earnings were $400.
- The Instagram ads got 18,000 impressions, and your total earnings were $300.
To compare the effectiveness of both campaigns, we’ll calculate eCPM.
- eCPM of Google ads will be ($400 / 20,000) * 1000 = $20
- eCPM of Instagram ads will be ($300/ 18,000) * 1000 = $16.6
Since Google ads have a higher eCPM, they’re more effective than Instagram ads. A high eCPM is excellent for publishers because it increases their advertising revenue streams.
The Difference Between CPM and eCPM
Because of their similar names, many people confuse CPM and eCPM, especially if they’re beginners. But understanding the difference between them is crucial if you enter the digital advertising world.
While CPM focuses on the cost of an ad per thousand impressions, eCPM focuses on the publisher’s revenue generated from thousand ad impressions.
CPM is crucial in marketing because it helps advertisers identify a viable platform for publishing ads. But the effective cost per thousand ad impressions reveals the revenue derived from the publisher’s ad inventory.
People generally calculate CPM at the beginning of the campaign and eCPM at the end of the campaign.
Anyone interested in digital marketing, whether as an advertiser or publisher, should understand that eCPM and CPM are crucial metrics. CPM is the cost an advertiser pays for a thousand ad impressions, while eCPM is a publisher’s revenue per a thousand ad impressions.
Advertisers use CPM to determine which site will increase the visibility of their ads. This will determine where they should spend their money at the start of a campaign. For publishers, eCPM is helpful when they need to compare the performance of their websites, ad formats, campaigns, and so on.