Basic Formulas In Internet Advertising

Ø  CPM CALCULATION:

Cost per mile (1000)- This is one of the most used metrics on the web. It is the cost that has to be paid by an advertiser for serving 1000 impressions.

Example: In a campaign, say an Ad of 728x90 is running and the CPM set is $5 and the impression to be served is 2,00,000, what will be the cost to the advertiser?

The formula for CPM is:

Cost to an Advertiser= CPM x (Impression / 1000)

Using this above metrics:

Cost to an Advertiser= 5 x (2,00,000 / 1000)

So, $100 is what the advertiser has to pay.

Ø  CPC CALCULATION:

As we know we have different rate models in online advertising, CPC – Cost Per Click is one of the popular and well used metric. Here the advertiser has to pay as per clicks and not on impression. The page views can be any number, as the advertiser is concerned about clicks here.

Example: Suppose a campaign having 300x250 size banner running at CPC of $2 and the number of clicks the Ad has got is 1000, what is the amount that the advertiser has to play actually?

The formula of CPC is:

Cost to an Advertiser: CPC x number of clicks

Using the above metrics,

Cost to an Advertiser= 2 x 1000= 2000

So, $2000 is what the Advertiser has to pay.

Also, cost= impression*CTR*CPC.

Ø  CTR CALCULATION:

CTR is click through rate, it measures the effectiveness of any advertisement. It is calculated by using a simple formula as below:

Example: A campaign having 728x90 Ad has served 10,000 impressions and has generated 100 clicks so what will be the CTR of that Ad?

CTR= (number of clicks / number of impression) x 100

Using above metrics,

CTR= (100/10000) x 100= 1%

Ø  CR CALCULATION:

Conversion rates are calculated by simply taking the number of conversions and dividing that by the number of total ad clicks that can be tracked to a conversion during the same time period.

Example: If you had 50 conversions from 1,000 clicks, then your conversion rate would be 5%, since 50 ÷ 1,000 = 5%.

·         If you're tracking more than one conversion action, or you choose to count "Every" conversion, then your conversion rate might be over 100% because more than one conversion can be counted for each click.

·         Use conversion tracking in your account to measure your conversion rates and ultimately to help guide your advertising decisions.

Ø  eCPM CALCULATION:

eCPM stands for “effective cost per mille (the effective cost per thousand). In its full definition, eCPM is the effective cost per thousand ad impressions.

Calculating eCPM is very simple. The formula for eCPM is:

Total Earnings/Impressions x 1000

(Total earnings divided by the number of impressions, multiplied by 1000)

Example: Imagine that you are running two ad types in your app called “Banner  1” and “Banner 2”.

·         After a month or so of running the ads, you decide that it is time to evaluate the effectiveness of each ad. After reviewing the data, you see that “Banner 1” generated 345 impressions and $1.00 in earnings. “Banner 2” generated 740 impressions with $0.60 in earnings.

·         Based on these numbers alone, it can be difficult to determine which ad type was the most effective. This is where eCPM comes in.