16

Aug

By Dennis R. Mortensen
16 comments
eCPM and Revenue Opportunities for Publishers

I was recently in talks with a set of publishers about a set of specific revenue opportunities, where one of the most evident (and honest) dialogue’s, was about how to quantify the potential revenue increase.

These publishers, not much different from everybody else, derived their revenue from channels such as:

  • Display Advertising (CPM)
  • Contextual Keyword Advertising (CPC)
  • Sponsorships (CPT)
  • Lead generation (CPA/CPL)

Think of the above list, as the publishers running internal sales departments, them using a multiple of advertising networks at the same time, having AdSense or similar applied to a subset of their pages, selling random front page take overs for 24 hours and unique lead generation for events as they happen etc.

My first thought, like most of you, I am sure, was to assemble all twenty something revenue streams in an Excel, and try to come up with a model for how we could quantify, the revenue increase of a promised page view increase. Assuring myself, that I took into consideration, facts like, unsold inventory, price differences between sections, the volatility of lead generation payouts etc. Honestly, first try, it didn’t work that well. There is simply too many variables, for which we know too little, which we need to take into consideration. Remembering that some of the variables go beyond those directly inferred from the revenue streams themselves.

I went back and had a second look at this, with the principle of the simplest explanation usually being the correct one. So I simply went with a monthly eCPM value [1].

eCPM = (Monthly Revenue / Monthly Impressions) * 1000

What’s beautiful, to me at least, in the above eCPM approach, is that it takes into consideration ALL known, and ALL unknown variables. AND It worked splendidly :-)

Let’s create an example for Publisher X:

Monthly revenue: $350,000
Monthly impression: 110,000,000

eCPM = ($350,000 / 110,000,000)*1000
eCPM = $3.18

Evaluating an initiative, which promises to provide an additional 22,000,000 page view impressions per month, the revenue opportunity is $ 69,960 ((22,000,000 * $3.18)/1000).

In conclusion. I suggest the possibility of replacing sophisticated online revenue opportunity models with simple monthly eCPM values, to calculate believable publisher revenue opportunities. I am super eager to hear about your models, so please share, and please refute my simplification.

[1] eCPM: Effective Cost Per Thousand

Update: Perhaps it’s time to baptize this not per the tone of Google (eCPM) – but as the more appropriate RPM (Revenue per Thousand)

Cheers :-)
/ Dennis (@dennismortensen)

  • http://carsonhsmith.com Carson

    I like this keep-it-simple method. I’ve been working on creating revenue dashboards recently, and there is really a temptation to go overboard. I’m currently breaking out CMPs for directly sold inventory, remnant inventory in addition to the eCPMs for each key site vertical. I do bucket one other revenue source (CPC) into the eCPM, but I like your idea of just lumping in everything else as well. Once you present people with the granular data, though, it’s quite hard to take it away. And usually they want it even more granular next time around (revenue by page, etc!). What I try to show is just how much a single advertiser’s campaign can influence the more granular level — hard to make decisions based on minutiae.

  • http://www.tmg.nl Bertwin

    The idea is simple indeed and actually, some people in our company (including some HiPPO’s) look at our business this way or getting there slowly :-)
    Keeping it simple is always the best way (to start, at least). But I do think, you should consider an extra influence. In your explanation you assume the eCPM (or eRPM, effective revenue per thousand) will not change, when the inventory does. The laws of economics show that when inventory increases (on any subject / product), the price will decrease, vice versa. So to make a more reliable estimation on the revenue to be expected, I think the formula should be something like this:

    revenue opportunity = (extra inventory * (eCPM*factor))/1000

    I wonder if you agree, or do I make things too complicated?

    @Carson: Try the “why and what questions”: If someone asks you for more granular data, just ask why they want it and what they’re going to do with the data. It might sound a bit rude, but believe me: it will make your life easier, since people start to think before they ask.

  • http://www.linkedin.com/in/nicktaylor360 Nick Taylor

    Hey Dennis – We look at Page eCPM or RPM (revenue per thousand page views) in a couple different ways but the most common is definitely what you suggest total revenue divided by page views. It’s a great way to measure how effective you are at maximizing revenue per page and then look at your trending over time.

    I also bucket out our 6 big revenue drivers (display, adsense, direct, kontera….) and calculate their RPM as well. This allows me to look for trends within each of our buckets that I might not have noticed if I was simply looking at the high level RPM. But at the same time it doesn’t get so granular that I’m looking at RPM by Ad Network etc.

    If you keep this all in a nice spreadsheet and add a few graphs it’s really a very effective way to keep an eye on RPM.

  • http://visualrevenue.com/blog Dennis R. Mortensen

    Hi Carson,

    I agree. It is indeed very hard to be actionable, by hand, on much more than two, or perhaps three dimensional data. Which is why I fell in love with the simple eCPM. That does not exclude folks like you and I from using detailed data for investigative analysis elsewhere.

    Cheers
    d. :-)

  • http://visualrevenue.com/blog Dennis R. Mortensen

    Hey Nick (good to hear from you),

    First. Perhaps RPM is the better term (over eCPM). For some reason I’ve stuck with eCPM since Google started using it inside AdSense. Thanks for the reminder.

    I certainly agree with you, that a publishers Yield Manager should segment his traffic and optimize vigorously on a per channel basis. However, if I were promised 10,000,000 page impression as part of a new initiative, I keep coming back to my site wide eCPM as the best possible way to do a cost benefit analysis (ROI).

    RPM
    d. :-)

  • http://visualrevenue.com/blog Dennis R. Mortensen

    Hello Bertwin,

    Great input. I hear you and absolutely agree that a massive increase in inventory, changes the dynamics. I am not sure traditional economic theories and models like price elasticity of demand etc. are a direct fit to inventories sold through channels such as AdSense and other networks though – them providing near unlimited demand to the publisher alas being able to gobble up the increase.

    They keyword for me is, massive, in the sense that a 100,000,000 page view property, which increases it’s volume with 1,000,000 views (1%), is unlikely to change its dynamics. However, a 50% increase most certainly changes the dynamic and I would go do exactly what you do above, apply a factor. The question is then, WHEN to apply a factor.

    BUT I also see my publisher eCPM being calculated and updated on a regularly basis (monthly, quarterly etc.), thus swallowing any ineffective inventory management, arisen from an abnormal increase, in the next coming update. Which makes it so beautiful to me. :-)

    I re-tweetet (is that a word?) your really constructive formula suggestion.
    http://twitter.com/DennisMortensen/status/21405884059

    Cheers
    d. :-)

  • http://www.tmg.nl Bertwin

    Goodmorning (afternoon) Dennis,

    Just saw your tweet, which brought me back here :D
    I have to agree, changes of 1 or 2% are not likely to cause a dramatic drop in eCPM, in fact, I can tell for sure it won’t. I think.
    What I mean is: how do I know a little increase does not effect the eCPM, since there are so many factors that might have some effect on the eCPM. But, you’re right, when one looks at the big picture, revenue will probably increase, when inventory increases. I’m not sure how big the increase should be to create a drop in eCPM. Something I definitely want to find out. When I know that, it shouldn’t be to hard to define the formula for the factor. It will give you a little formula inside the big formula, but it also will make the predictiveness (does not seem to be a word, but I hope you understand what I’m trying to point out) of the big formula much more accurate, right?

    Cheers!
    Bertwin

    P.S. I think re-tweetet isn’t really a word yet, but since I understand what you mean, we could use it as well :-)

  • http://visualrevenue.com/blog Dennis R. Mortensen

    >> I’m not sure how big the increase should be to create a drop in eCPM
    I would be really eager to hear about any research/findings from your side of course.

    Cheers
    d.

  • http://www.yieldbot.com Jonathan Mendez

    Dennis – The key factor I would be concerned with is *what* kind of page views are being created and the % of those additional page views that will be sold – or that will monetize at sold rates vs. unsold rates. Don’t forget seasonality can greatly effect the sold/unsold rates as well as the CPM pricing. I think you should add an input for the % of PV are unsold vs. sold for that publisher and adjust. Though of course I’m complicating things, not making them easier. ;-)

  • http://visualrevenue.com/blog Dennis R. Mortensen

    Hi Jonathan,

    I hear you. AND my problem is/was, that I think like you, eager to include obvious influencing variables. The simpler model just kept coming out better – and when slightly off, it corrected itself the following month. I am taking notes though.

    n.b. yieldbot? I like it! :-)

    Cheers
    d.

  • http://www.icrunchdata.com Todd Nevins – icrunchdata

    Simple and to the point. I like the eCPM model as well but have never explained it in a straight forward manner.

    Great post!

  • http://blog.scoutanalytics.com Matthew Shanahan

    Dennis,

    The simple model is a good approach especially as you compare tradeoffs between programs — better to be vaguely right rather than precisely wrong! You may want to think of it as eRPM because there is more than 1 ad per page typically. CPM rates usually talk about the single “ad” impression. RPM is used by most publishers to talk about the collective revenue the page delivers (e.g., Nick’s point above).

    A simple formula using eRPM can give a publisher more insight and control over their decisions. The key is to include the audience in the calculation which is what is being monetized. Average revenue per unique (ARPU – revenue/uniques) allows a publisher to look at their overall gross revenue efficiency. In a pure ad-model, ARPU = (page views/unique*eRPM/1000) where eCPM is a component of eRPM as pointed out by Nick.

    The nice part about this simple equation is that a publisher can do a sanity check on the page view assumption per unique. They can start to focus whether audience development vs. traffic development is more likely to succeed in increasing revenues.

    Cheers,
    Matt

  • http://visualrevenue.com/blog Dennis R. Mortensen

    Hi Matt,

    Good input and happy to hear that we agree on the idea of being “vaguely right rather than precisely wrong” :-)

    AND I hear you, perhaps it’s time to baptize this not per the tone of Google (eCPM) – but as the more appropriate RPM (Revenue per Thousand).

    cheers
    d.

  • http://mattlillig.blogspot.com matt lillig

    Always a fan of the KISS method.

  • http://visualrevenue.com/blog Dennis R. Mortensen

    .. me to (as long as the data backs it up) :-)

    d/

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