eCPM stands for effective cost per Mille (or effective cost per thousand impressions) and RPM stands for Revenue per thousand impressions. Both the terms usually mean the same but they are used in different contexts.
When advertisers want to run display ads on a particular website, they will calculate the eCPM and see if they can afford to run the ad. Advertisers will compare the eCPMs of various channels and determine which one is converting better. The obvious choice would be to go with the channel which offers the least eCPM paired with maximum conversions.
RPM is usually publisher’s language and they find out how their web property is performing. Page views keep changing but RPM for a website in a specific industry and with a specific audience fairly remains constant over a period of 6 months to a year. A health niche website may have a higher RPM and a cine gossip entertainment website may have a relatively low RPM compared to the health website.
How to Calculate RPM?
Note that the publisher need not always charge the advertiser on every thousand impressions. The publisher may charge the advertiser on clicks basis but still can measure the effectiveness of each ad campaign on RPM.
RPM = (Total Revenue) / (Total Impressions) x 1000
Advertiser A pays $1 per click. On running the ad, it generated 25 clicks on 20,000 page views. It means that for 20,000 page views, the publisher earned $25 (25 clicks x $1 per click). The RPM would be:
- ($25/20,000) x 1000 = $1.25
Advertiser B pays $2 per click. On running the ad, it generated 15 clicks on 25,000 page views. Total earnings is now $30.
- ($30/25,000) x 1000 = $1.20
In the above example we can easily make out that Advertiser A performs better because the RPM is higher!
How to Use the RPM Data?
As a publisher, you should always try to increase your RPM every quarter. This makes your web property more valuable. If your current RPM is $2, set a target of $2.50 and find out opportunities to recruit advertisers. This is the CPM rate you should present to the advertisers and sell your ad inventory by communicating the benefits of advertising in your web content property.
Any questions? Leave them in the comments below.