What is rCPM and Why Does it Matter to Digital Advertising?

rCPM

One of the very first tasks I was given when I joined StudyBreak Media was to complete an introduction project which would familiarize me with some of the most commonly used terms in digital advertising. It was a great opportunity for me to build a strong foundation in digital advertising, but it also brought up a lot of questions.

One big question for me is, why isn’t more emphasis being placed on the rCPM metric? CPM and even eCPM can be found by a quick search no problem, but if you try searching for just the term “rCPM” well…I’m sure you’ve tried it. Not exactly what I was looking for. Now add the words “digital advertising” and at least we are in the right field, but not much better.

So, what’s the deal? Where are all the articles? I have no idea. But, I am going to do my best to help you out and give you at least one more option when you are trying to understand what exactly rCPM really is (pun intended – ha).

So let’s back up a moment to make sure you understand what CPM is first, right? Here it is defined:

CPM (cost per milli) – The word milli comes from Latin meaning 1,000. The term literally means, cost per 1,000 impressions.

Okay, so now if that’s the value of the ad unit why the need for eCPM and rCPM? Well, while in a perfect world CPM would tell you what an ad unit is worth, it’s not really that simple. What you should be asking is, how is CPM determined? If you’ve done some research already then I’m sure you’re already thinking about eCPM. If not, here it is defined:

eCPM (effective cost per milli) – This measurement takes into account how many impressions were actually paid for. The formula is revenue/(paid impressions/1000).

The purpose of eCPM, which is specific to each of your ad partners, is to show what the value of ad inventory is based on the amount of impressions that were served (paid impressions). It only takes into account what your ad partners have actually monetized. Having CPM alone doesn’t show you the worth of the ad space, it simply is the predetermined worth you’ve placed on that space. And, eCPM is the calculation for determining the CPM. For this reason, you will frequently see these terms used interchangeably.

Alright, so now you have eCPM which is a way for determining what the CPM is. And CPM which tells you how much you are going to earn in gross revenue. What else could be needed?

Well, here comes rCPM. This metric is important because it can help you understand if the CPM you’ve agreed on with an ad partner is actually appropriate for the amount of impressions the unit is seeing, not just how much the partner is agreeing to pay for.

Let’s break this down a bit more.

You are a publisher and you agree on a CPM of $3.00—not too shabby you think. If your site gets 140,000 impressions a day and your ad partner is filling 80 percent of the total impressions available giving you a total of 112,000 paid impressions, then you get to collect $336 in gross revenue a day. Now, that may sound pretty great to you. Why do we need to look at rCPM?

Well, if you are hoping to continue to increase in revenue over the next 6 months to a year you definitely should. When rCPM metrics are applied, you are now taking into account the total impressions that were available, not just the impressions the ad partner chose to buy. And now we define it:

rCPM (real cost per milli) – Revenue/(Total Impressions/1000)

Now, bringing this back to the rCPM formula above, if your site serves 140,000 impressions a day, that provides your top partner with 140,000 opportunities to show their advertising. Therefore, measuring opportunity vs. actual impressions filled is a much more accurate way to determine actual value and of course, real CPM.

What am I talking about? Take a look at this calculation:

$336/(140,000/1000) = $2.40

So what happened to that $3.00 CPM you agreed upon? Well, you only monetized on 80 percent (keeping in mind we haven’t even scratched the surface of discrepancy here) so you were really only receiving $2.40 for those 140,000 possible impressions. Without calculating rCPM, you might not see how the value of your space is being under-monetized or how that partner may not be the right fit for your site.

So again, I ask, why isn’t anyone talking about rCPM? At StudyBreak Media, we take a close look at this information and we do it daily. Looking at this data can really be a game changer for you when optimizing your ad units so we feel, how can you not look at it. What do you think?

Array

3 Comments to What is rCPM and Why Does it Matter to Digital Advertising?

  1. Thank you! I just started a/b testing an ad provider who uses rCPM. Vs. another who uses eCPM. I wondered why my net earnings looked better from the new provider even though the rCPM was slightly lower than the eCPM. Now I get it.

  2. Veronica Hunt

    thanks for an informative article, I am studying for my DigitalAdLab exam and this really helped 🙂

Leave a Reply

Your email address will not be published. Required fields are marked *