Ad servers display ads based on the information that people are looking for. The primary variable is the number of impressions of the web page carrying the ads. This is measured by the ad servers as the number of times the page is loaded on the basis of which the total cost of the ad for 1,000 impressions is calculated. CPM is short for “cost per mille” and shows how much it costs the advertisers for an ad to be seen by 1,000 people. Since CPM/1000 is the cost of one impression, the total cost to the advertiser would be:
Total Cost = (Total Impressions * CPM)/1000
eCPM as a performance metric to determine the “Effective cost per thousand impressions,” or “Earnings per thousand page views” or the revenue generated from a thousand impressions of a particular advertisement. eCPM uses what is called click-through-rates or CTR to determine the cost.
The Page Click Through Rate (CTR) is the number of ad clicks divided by the number of impressions or page views that you have received.
CTR = No. of clicks per 100 views = ( Clicks / No. of impressions) * 100%
Thus if a particular page receives 2000 views and and 5 clicks and the cost to the advertiser/revenue to the publisher is $20. This means
Page CTR = 5/2000 * 100 or 1/4
CPC stands for Cost Per Click. Google Adwords made this model popular. Generally search and text advertising is sold by CPC model. In this kind of advertising model you just pay for number of clicks you get on your ads irrespective of number of impressions it takes to generate those clicks.
eCPM = earning per thousand views = $20/2000 x 1000 = $10.
Cost per click = eCPM/ no. of clicks or $20/5=$4
Yet, CPM is favored by advertisers looking to enhance or build brand recognition for its long-term benefits. They are relatively inexpensive too. CPM is also ideal for a webmaster hosting blogs that are broad-based (horizontal market) and produce content on the entire spectrum of categories.
benefit from using pay-for-performance-based advertising option such as cost per click (CPC), cost per action (CPA), and cost per lead (CPL) models. Advertisers are charged not simply for the number of times their ads are displayed, but according to the number of times they are clicked. The difference between the models can be compared this way: CPM relates to the size of the traffic passing through a street on which a certain billboard advertising a product is displayed, where as CPA/CPC/CPL refers to the number of people who actually pulled their cars over, entered the shop, made inquiries (CPC), left their addresses (CPL), and finally bought the items.
The advertiser choose a CPM rate and specify which type of websites where the ad could be displayed. Some popular advertising networks include PocketCents(pocketcents.com), Clicksor (clicksor.com), AdBrite (adbrite.com), Infolinks, OpenX, Casale Media, ValueClick Media, Tribal Fusion, and Burst Media.
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