Plain Truth About CPM Rates
Last time we examined the major factors that can lead to CPM rate drops. Today we are going to talk numbers and break the spell of the cost-per-mille metric with Mike, Head of Publishers Team at Adsterra. Mike knows a great deal about how Adsterra CPM works. Moreover, he is fond of proven facts and strong argumentation, so there will be lots of calculations and real-life examples. Brew yourself a robust cup of coffee and get ready to do maths.
Apart from “how do I make money from my website” question, tons of messages from publishers contain another concern:
– My CPM is so low. Why?
– My rate is low today, it was good yesterday!!! Fix it!
– My CPM has dropped. I remove codes!
– Can you increase the metric from $0.0001 to $5?
– I sent you 10 impressions and got 2 clicks but no money. How can it be?
These concerns are natural since the CPM rate has always been the principal determiner of a publisher’s income. However, we are going to prove that the rate itself depends on your website visitors’ behavior and, which is more, on the advertisers’ goals. Let’s drill into details.
How CPM is Calculated
You already know that CPM (cost-per-mille), also called cost-per-thousand (CPT), is a commonly used measurement in advertising. Some publishers use abbreviation RPM, which is revenue per mile. But in this article, we are going to use the most common version.
So how CPM is calculated, and why it always varies even though your traffic stays the same?
Your Traffic Affects CPM Rates
Your traffic cost may change. It means that advertisers may pay more or less for a thousand impressions. Even if you have bought traffic with precise targets, say, US, Windows, Chrome, 25-34 y.o, Male — these users’ behavior on advertisers’ landing pages will differ from that of your competitors’.
Why? Just because people are more than just criteria, they have different behavior patterns and needs. Advertising can be useless if your visitors are not aiming at buying anything.
What Advertisers Expect From Your Traffic
Let’s say there is a cool new gadget, and the advertiser is expecting huge sales. It’s time to launch an advertising campaign! You start rotating the ad. Everyone is willing to buy this gadget, and when your users see the advertisement with this product, they click on it, go to the advertiser’s landing page and buy this product. Your users are happy, the advertiser is happy too, and finally, the publisher (you) is also satisfied because you get credited for that sale. Advertiser now knows that when he shows an ad to your audience, they buy. This advertiser is ready to pay more for ads impressions on your website.
Next day or week, the same users come back to your website and see the same ads they have already seen. Will they buy this gadget again and make everyone happy? I doubt that. So today your traffic is not so attractive to the advertiser. The fewer deals (clicks, leads) you make, the lower your CPM will be.
But wait! You rotate many ads, and you work on CPM, why should you care about sales? Here comes the sober truth.
How Advertisers Change Your CPM
Behind any CPM ad hides a certain CPA offer (unless an advertiser wants to make the brand famous showcasing it everywhere). Let’s dive into details. There are 2 major types of advertisers on the market.
First type. CPA (cost-per-action) advertisers. These guys pay a certain price for the specific action they require your users to do. For example: install an application (CPI — cost-per-install), fill your mail/phone/credit card (CPL — cost-per-lead), make a sale (CPS — cost-per-sale), etc. Almost all ad networks do have CPA adverts. Some ad networks work only with CPA. And it means you will be credited only when your traffic performs well for CPA adverts. In case there are zero paid actions, you get zero revenue.
Second type. CPM (cost-per-thousand impressions) advertisers. They pay a fixed rate for the traffic. These guys are risky, and they hope that the traffic they buy will generate some actions (aka conversions) and bring them revenue.
Advertiser’s VS Publisher’s Earnings
Advertisers take a CPA offer with, for instance, $5 payout and predict that it should have a conversion rate of 1 sale per 4000 impressions. So they set a CPM rate of $1.25 per 1000 impressions. Let’s assume there are 3 websites (aka 3 traffic sources) that compete for the offer.
Website #1 made 2 sales per 2000 impressions. Publisher earned $2.50 (could earn $10 if he was working on CPA). Advertiser earned $10 – $2.50 = $7.50
Website #2 made 1 sale per 2000 impressions. Publisher earned $2.50 (could earn $5 if he was working on CPA). Advertiser earned $5 – $2.50 = $2.50
Website #3 made 0 sales per 2000 impressions. Publisher earned $2.50 (could earn $0 if he was working on CPA). Advertiser earned $0 – $2.50 = -$2.50
CPM advertiser looks through the traffic sources’ stats and blocks website #3 since he is not earning anything from it and continues with profitable traffic sources. It’s a very plain description of how the CPM adverts work and of course they do not block sources after 2000 impressions, usually buying more traffic to see conversion rate on bigger volumes.
Now you get the idea of how everything works, let’s continue with facts that can impact your eCPM.
How Frequency Capping Affects CPM and eCPM Value
Usually, Frequency Capping is applied to popunder ads, and it means the number of popunders that a unique user meets in a given timeframe. You should understand that all advertisers are sorted by the bid they pay for the traffic.
Let’s say, we work with 5 CPM advertisers.
Advertiser #1 pays $2
Advertiser #2 pays $1.5
Advertiser #3 pays $1.0
Advertiser #4 pays $0.5
Advertiser #5 pays $0.05
Also we have 3 publishers with different Frequency Cappings settings.
Publisher #1 sets 1/24 — 1 popunder per 24 hours
Publisher #2 sets 3/24 — 3 popunders per 24 hours
Publisher #3 sets 5/24 — 5 popunder per 24 hours
Let’s’ assume each website of those 3 publishers has attracted 1000 users, and they all have seen ads according to the frequency cap.
So how CPM will change and how much will every publisher earn?
Publisher #1 will have 1000 impressions and earn $2 with eCPM of $2. Why? Because this publisher has shown popunder in 24 hours. His earnings have come exceptionally from Advertiser #1.
Publisher #2 will have 3000 impressions and earn $2 + $1.5 + $1.00 = $4.5 with CPM of $1.5.
Publisher #3 will have 5000 impressions and earn $2 + $1.5 + $1.00 + $0.5 + $0.05 = $5.05 with CPM of $1.01*
* This is an average CPM rate, we sum up the bids from 5 advertisers ($2, $1.5, $1.0, $0.5, and $0.05) and divide them by the quantity of advertisers — 5.
So, higher frequency cap led to more profit but less eCPM value. Why should you care? Large amounts of popunders might severely annoy users, and they simply will close the popunders without any paid actions. As a result, advertisers can block your website and cut down your CPM rate.
Multiple Ad Networks Codes May Decrease CPM Rate
This fact can be applied to any ad format: popunders, display banners, native banners, etc. Some publishers think that if they place 2 popunders from 2 ad networks instead of 1 on the same page, their profits will double. Unfortunately, they are wrong. After some time, the second ad network will lower your CPM only because their top advertisers who bid the highest and expect to get the first-click traffic are getting the second-click traffic, and its quality is obviously lower.
Eventually, they will either decrease CPM rates (the best alternative for a publisher) or simply block your site and stop buying your traffic. Thus, your traffic will go to 2nd bid which is obviously poorer than 1st advertising bid, and your eCPM will go down along with your profit.
The same story with banner ads. I have seen sites with 20+ banners on a single page. And people keep asking “why my banner CPM is low”? Most display banner advertisers switched to CPA because of such publishers’ behavior. Publishers were overusing CPM banner ads, placing 20, 30…100 banners, what eventually harmed the whole display banner market. You should carefully pick the number of ads to put on your website and keep the balance between profit and user satisfaction.
CPM is not a stand-alone rate with a fixed amount of money paid for ad impressions. It changes dynamically and depends on how well your traffic reacts to advertisers’ offers and how masterful you are putting ads on your website. The basics are following:
- Behind any CPM ad hides a certain CPA offer
- Traffic quality and your users’ behavior is a crucial thing about CPM
- When oversaturated with ads, your website starts losing profit
- Inappropriate frequency cap for popunder/banners may play a trick on you
- Never hesitate to ask for your manager’s advice as they know all about advertisers’ goals
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