Advertising’s Common Denominator: the CPM
ADOTAS — The concept of common denominators is something we all learned about in elementary school, and like many elementary school lessons – cursive handwriting, long division by hand and finger painting – some of us may require a quick refresher course.
Search engines and search marketing affiliates get it – they need to be earning more per click (EPC) than they are spending per click (CPC), and they adjust their marketing efforts quickly and accordingly. It’s an easy set of metrics to match up.
Display publishers and advertisers can easily find some common ground using eCPM — effective Cost per Thousand Impressions.
Typically, inventory is purchased on a CPM model in display advertising. More and more often now though, the advertiser is looking to hit a backend CPA or ROI goal. If the advertiser is willing to be transparent with their reporting, or even better has a pixel to place, the publisher can easily track how many actions or leads are coming in. We can then compare that to how much is being paid for the inventory.
So here’s a throwback to the word problems of 4th grade:
Sally is buying inventory from Website XYZ at a $5.00 CPM rate, or $5.00 for every 1,000 impressions. This inventory has a click thru rate of 2%. She is advertising Offer A which has a payout of $3.00 and a conversion rate of 10%. Is this a profitable media buy?
2% of 1000 impressions = 20 clicks
10% of 20 clicks = 2 conversions
This means when you run the math for every $5.00 you spend you are making an eCPM of $6.00 – a profitable buy for Sally.
Thus, the straightforward math equation of yesteryears can bring you to this understandable solution. Common denominators are not only concepts learned through your childhood education, but also serve to discover the easy solution to profitable partnerships. The simple effective CPM is indeed the common denominator for today’s online advertising.
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