In this article we are going to discuss, how to calculate CPM, CPC, CPA, CR, eCPM, eCPC, eCPA, and ROI. First, let us explore each term in detail and process to calculate them individually.
8 Important Formulas in Online Advertising
CPC (Cost Per Click)
CPC Stands for Cost per click. It is an advertising term in which the advertiser pays a cost to the site owner for each click on an ad. It is also known as pay per click (PPC). It is the factor that helps to determine the costs for showing ads on search engines.
It is a very important factor for the marketer to understand the performance of their arbitraging opportunities and digital campaign.
It is calculated by dividing the total cost of clicks by the total number of clicks. Average CPC is the actual amount that is charged for a click on the ad.
Note: Average CPC may be different than your max CPC which is the highest amount for clicks.
The calculation formula for CPC: Total cost of clicks / Total number of clicks.
For example
If your ad gets two clicks one costing $ 0.30 and one costing $0.40, now the total cost is $0.70. Now, divide this total cost by total clicks to get an average CPC of $ 0.35.
CPM (Cost Per Mille/Cost Per Thousand)
This term is often encountered in digital media and stands for Cost per Mille ( means thousand in Roman numerals). Many people have a misconception with "M" as million which is not true. The literal meaning of CPM is a cost per thousand. While dealing with such cost per thousand impression ad, there are two factors: the total cost of the campaign and the number of the impression of ads.
The calculation formula for CPM : ( Total cost of campaign / Total impression) * 1000
You can obtain CPM by multiplying the cost for each impression by 1000.
For example
If the cost for each impression is 1.2 cents, then the CPM is $12.
CPA (Cost Per Action/Acquisition)
CPA stands for cost per acquisition or action. It is the ad model that pays the publishers for any positive customer action. A typical action can be sales of a product or sign in of newsletter etc.
CPA can be calculated by dividing total cost to the advertiser with the number of actions received on the ad.
The calculation formula for CPA: Total cost to the advertiser / Number of actions ( conversion)
For example:
Suppose ad campaign was viewed 6000 times and received 300 clicks with 30 of positive conversion. The total cost that advertiser wishes to pay is $ 250. Now, the CPA can be calculated as
CPA= 250 / 30 = $ 8.3.
CR (Conversion Rate)
CR stands for conversion rate. It is an important term to consider during an ad campaign. It is simply the ratio of a number of positive conversion to the total number of clicks on a particular ad. These types of ads help the company make a profit through a product's sales or subscription.
The calculation formula for CR : ( Total number of conversion / Total number of clicks) X 100
For example
If the total conversion is 20 out of 1000 clicks, the conversion rate is 2.00 %.
eCPM (Effective Cost per Mille)
eCPM stands for effective cost per mille that tells the performance of ads. eCPM is found out by dividing total earnings from an ad by the number of impressions and multiplying the result by thousand
Calculation formula or eCPM : ( Total ad earnings / Total impression) X 1000.
For example:
If you earn $ 200 with 10000 impression on ad, your ePCM is (200 / 10000) X 1000 i.e $ 20.
It is a great metric that helps publishers to calculate and optimize their ad campaigns and compare revenue across various platforms.
eCPC (Effective Cost Per Click)
eCPC stands for effective cost per click and similar to eCPM. Only the difference is, it takes into account the number of clicks rather than 1000 ad impressions. Hence eCPC is a metric telling the actual earnings made from an ad for each click.
The calculation formula for eCPC: Total earning from an ad / Total number of clicks on an ad
eCPA (Effective Cost Per Action)
eCPA stands for effective cost per action. Similar to eCPC and eCPM it calculates the effectiveness of the CPA ad model. It can be obtained by dividing total earnings from an ad campaign by a number of actions taken on that ad.
The calculation formula for eCPA : Total earnings from an ad / Total number of actions taken
ROI (Return on Investment)
ROI stands for return on investment. It is a crucial term in the field of digital marketing. ROI is used to calculate or analyze overall profit gained out of a particular ad campaign. It is obtained by subtracting the total cost of a campaign from total ad revenue and dividing it by total campaign cost.
The calculation formula for ROI : ( Total ad revenue – Total ad campaign cost ) / Total ad campaign cost.
For example
Suppose your company spent $500on ad campaign and earned a return of $ 1500 as the revenue. Now, ROI is ( 1500 - 500) / 500 i.e $2 which means your company earned $2 in return for every $1 spent on campaign.
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