How to estimate CPM Revenue

Estimating CPM Revenue,

Online companies and brick-and-mortar businesses with an online presence typically use online advertising as the primary or partial driver of traffic to their websites. As with all advertising, the expenditures can be costly if the advertising is ineffective and rarely results in sales. One way companies measure advertising effectiveness is through estimating the revenue generated by CPM, a term often associated with online advertising. In addition, online publishers derive much of their revenue from advertisers paying CPM fees.

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CPM definition

The often-used term CPM is an acronym for cost per 1,000 impressions. The CPM reflects the cost an online advertiser pays for 1,000 impressions of an advertisement. Ads include banners, text links and side boxes. One impression equals one showing of an advertisement on a web page. Although most people use the term CPM, some also refer to cost per impression as CPI.

Purpose of CPM

Online companies, operating as content publishers, typically derive all or a portion of their revenues from advertising. The advertisers want the site's visitors to click on the ad, visit their site and make a purchase. Therefore, these publishers use CPM to measure their revenue per 1,000 impressions, although, technically, the term should be RPM.

Tracking CPM for Business

An online publisher can use analytical software tracking tools to determine how many times a particular page showed. For those that alternate ads based on keywords or a rotation, the publisher can engage a developer to insert code that tracks the occurrence of each advertisement. A manager would multiply the number of times an ad showed by the CPM rate. For example, if an ad showed 10,000 times in one week and cost $3.50 per 1,000 impressions, the total cost would be $35. This is the CPM revenue the online advertiser would generate.

Generating Leads

Advertisers often state that they deliver listeners, readers or viewers to businesses, and the business is then responsible for converting those visitors to buyers. Therefore, the advertiser's goal is to generate as many leads as possible. However, the business owner strives to obtain the most value for his advertising dollar. To the extent that an advertiser can help the business determine its conversion rate and, therefore, the true value of CPM, the advertiser may increase its ad sales.

Tracking CPM for Advertisers

The advertiser tracks CPM revenue differently. It must install software or phone procedures that identify the referral source of the lead, then track the lead to determine if it converts to a sale. The advertiser must also track the amount of the sale that resulted. Software exists to help online firms make these calculations. The process becomes more involved and complex for offline purchases.