THE MEDIA ENCYCLOPEDIA
Effective Cost Per Mille
Effective Cost Per Mille (eCPM) is a measure of advertising value based on realized earnings and utilization.
What is Effective Cost Per Mille (eCPM)?
Effective Cost Per Mille (eCPM) is an end-of-period calculation to show the value of inventory based on realized earnings and utilization. Essentially, eCPM is a way of understanding the “actual” value of a publisher’s advertising inventory versus the contracted value or “sticker” price of said inventory.
What is the formula for Effective Cost Per Mille (eCPM)?
eCPM = (Revenue/Contracted Impressions) * 1000
What is an example of Effective Cost Per Mille (eCPM)?
A publisher prices advertising inventory for a specific vertical at a specific rate, or CPM. At the end of the reporting period, the publisher will calculate the amount of advertising inventory sold and compare it to the total amount of revenue generated.
As an example, a publisher's Tech vertical is projected to have 1,000,000 in available advertising inventory — usually quantified as impressions — for the month of July and prices that inventory at a $10 CPM.
At 100% utilization, this means the potential for revenue is $10,000 for the month (1,000,000 divided by 1,000 times 10).
At the end of the month, however, the publisher realizes only 950,000 impressions were served, and only 800,000 sold, yielding a total of $5,000 revenue for the month. So, while the sticker price for the advertising inventory was set at a $10 CPM, the effective CPM, or eCPM (adjusted based on the amount of inventory sold) is $6.25.
The discrepancy or delta between the contracted or “sticker” price and the actual or “effective” price, in this case, would be quite large (in this case, a 37.5% markdown in product value.
On the other end of the transaction, an advertiser can make a similar calculation.
As an example, an advertiser spends $100 on media at a $10 CPM with the understanding that 10,000 impressions are guaranteed over the contracted campaign timeline.
In certain circumstances, a publisher could over deliver on the guaranteed impression count (say, delivering 15,000 instead of 10,000), which means the advertiser got more value out of the media spend and paid a lower CPM for the inventory, effectively.
For agency media planners, eCPM is a decent proxy to understand the efficacy of media spend in relation to the value captured.
For publishers seeking to monetize owned media channels, the delta between CPM (the sticker price) and eCPM (the realized value) is worth monitoring to ensure the efficacy of your monetization efforts.