How To Calculate eCPM In 5 Steps (Plus Tips To Increase It)

Indeed Editorial Team

Updated 21 September 2022

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Digital advertisers use multiple tools and techniques to improve the cost-efficiency of their advertising campaigns and generate higher revenues. The effective cost per mille is a versatile digital advertising metric that helps advertisers track an ad's monetisation efficiency. If you are interested in a career as a digital marketer, paid advertiser or other similar roles, understanding this key metric can help you in your career. In this article, we discuss the effective cost per mille, explain how to calculate eCPM, discuss its importance and share a few tips to increase this metric to maximise ad revenues.

What Is eCPM?

eCPM is the acronym for effective cost per mille. It is a metric that advertising professionals use to calculate an ad's monetisation performance. In simple terms, it refers to the revenue advertisers generate per one thousand views of an ad. Digital marketing analysts use this metric to determine the performance of an ad based on how much revenue it generates for every 1000 (or mille) impressions. It helps advertisers and publishers quantify customer engagements such as clicks or views. The effective cost per mille measures two key factors:

  • Monetisation: It measures how much revenue a particular campaign generates from ads. Networks rank campaigns with the highest eCPMs first, enabling them to create more impressions quickly, which in turn, increases ad revenues.

  • User acquisition: An app with a high effective cost per mille indicates that its ads are performing well in converting users and a larger number of users click on the ad.

Related: What Is PPC? (Definition, Importance And Advantages)

How To Calculate It

Use the following steps to calculate the effective cost per mille of your ad campaigns:

1. Familiarise yourself with the formula

The formula to calculate effective cost per mille is:

Effective cost per mille = [Total ad revenue / Total ad impressions] x 1000

Ensure that you apply the same period to both ad revenues and impressions. For example, if you consider the ad revenue for a month, the ad impressions are also tracked over the same period.

2. Find the total ad earnings

The first step to calculating the effective cost per mille is determining the total ad earnings. The total ad earnings refer to the money you earn from the ads you sell daily. For example, if you sell ad units for ₹50 and you sell 50 of them in one day, the total ad earnings are ₹2500 per day.

3. Divide the ad earnings by total impressions

The next step is dividing the ad earnings calculated in the previous step by the total impressions. This gives you the revenue per impression. For example, if you received 1,00,000 impressions per day, you divide ₹2500 by 1,00,000, which is 0.025.

4. Multiply the answer by 1000

The final step in calculating the effective cost per mille is multiplying the answer in the previous step by 1000. This helps you determine how much ad revenues you earn for every 1000 views. In this example, when you multiply 0.025 by 1000, you get ₹25. This indicates that you make ₹25 for every 1000 impressions. Publishers usually sell their ad units in batches of 1000, which is why the formula multiplies the revenue per impression by a thousand.

5. Interpret your findings

Now that you have calculated the effective cost per mille, you can use it to analyse the performance of your ads. A higher value indicates more significant earnings. For example, if five of your ad formats have an average effective cost per mille of ₹30, while the other two generate only ₹20, you can try to identify why the latter ad formats are not earning as much as the other ones. This helps you optimise your ad campaigns and strategies to increase marketing revenues.

Related: What Is Google Analytics? (Benefits And How It Works)

Why Is Effective Cost Per Mille Important?

Here are three reasons why app developers, publishers and other marketing professionals track the effective cost per mille:

To increase ad revenues

The effective cost per mille is a critical metric that helps you increase ad revenues. By implementing different advertising techniques, you can increase the effective cost per mille rates, which increases ad revenues. For example, you can try to increase ad impressions by testing other ad formats and improving ad viewability. Another method is to compare the number of impressions of different ad types and choose the best ones that offer maximum revenue.

Related: 40 Digital Marketing Interview Questions And Example Answers

To measure ad metrics across formats

Marketers use different metrics like cost-per-action (CPA) and cost-per-click (CPC) to measure ad revenue for various campaigns. The effective cost per mille is a standard metric that measures ad revenues across all channels and formats. If you are implementing a diverse ad campaign, the effective cost per mille can help you measure and compare ad costs and revenues across all campaigns, using a uniform metric.

To estimate future revenue

You can also use the effective cost per mille metric to estimate future ad revenues. First, you can calculate the mean effective cost per mille of past ad campaigns. Use this value as the baseline for current campaigns. If your recent ads have a higher effective cost per mille than previous campaigns, they are performing well. If they have a lower value, you can use the past effective cost per mille as a goal to improve the performance of the current campaign.

Related: 35 PPC Interview Questions (With Example Answers And Tips)

How To Increase eCPM And Generate More Ad Revenues

Even a slight increase in effective cost per mille helps make a massive difference to your advertising revenues. Here are a few tips to help you increase the effective cost per mille:

1. Share valuable data with advertisers

Advertisers often pay premium rates to target specific demographics, such as customers of a particular age, location or gender. Sharing this data with advertisers helps them create personalised messages that target specific customers. This is one of the main reasons why advertisers prefer in-app ads over other digital advertising channels. By sharing valuable customer data with advertisers, you can optimise in-app ads by making them relevant to users. This helps in increasing the number of impressions, which in turn, increases your revenues.

Related: How To Become A Freelance Digital Marketer: A Complete Guide

2. Focus on achieving higher viewability

Viewability is an important metric in mobile advertising. Advertisers prioritise ads that their target audience is likelier to view and click. They often pay extra to mobile apps that achieve higher viewability rates. By demonstrating higher viewability rates to advertisers, you can get them to pay higher rates for advertising on a company's mobile app or website. Here are a few tips to help you reach higher viewability:

  • Focus on growing a community of engaged users likelier to watch an in-app ad.

  • Eliminate technical issues in the app, like improper formatting of ad spaces or latency, to increase viewability rates.

3. Experiment with different ad formats like video

Some ad formats generate a higher effective cost per mille than other ad formats. For example, viewers are likelier to engage with a captivating video ad than a passive banner ad. By including several different ad formats in the app, you can improve customer engagement rates, which helps in boosting revenue. Experiment with other attributes for ad format, frequency and placement to find the right strategy that elevates the customer experience, helping you generate higher revenues.

4. Run A/B testing

There are two types of ad units:

  • User-initiated ones like rewarded video ads, offer walls

  • System-initiated ad units like interstitials, banners

A/B testing helps app developers compare ad monetisation strategies to identify the ones that maximise revenues. You can run regular A/B tests to determine which ad units are performing well and which ones are not performing well. If you notice that a particular ad unit consistently delivers a low effective cost per mille, you can remove it from the app.

Related: Usability Testing Tools: A Complete Guide (With Examples)

5. Join multiple ad networks

Offering your ad inventory in several advertisement networks is an excellent way to increase the value and demand for your inventory. Joining multiple ad networks increases the competition for your ad units, helping you increase the effective cost per mille and driving revenues. When signing up on an ad network, select the ones that offer the best deals and payments for your geographical location.

6. Improve user experience

Focusing on user experience and usability helps you win the trust of your audience. If a site overwhelms the visitors with multiple ads placed in inappropriate locations, it can cause an increase in bounce rates, causing visitors to leave the site or app without completing the desired action. Try to maintain the right balance between usability and ads to increase customer experience and boost the effective cost per mille in the long run.

7. Optimise the site or application for mobile

A vast majority of users access websites from their mobile devices. Optimising the site for mobile helps in increasing page load speeds and adapting the size and position of ad units to suit mobile screens. Additionally, focussing on search engine optimisation (SEO) helps you increase high-quality organic traffic, which allows you to increase the rate of your ad units, boosting the effective cost per mille.

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