A critical aspect of website and ad revenue optimization is the knowledge of how to measure ad performance on your website. No one understands the direction you want your website to go in and what you want out of your website better than you. The more knowledge you have on how to measure ad performance, the more control you have to put your website on the path you want it to be on.
While there are optimal methods in terms of ad sizes, placements, color, etc. that work for some, that doesn’t mean the exact same thing will work for you. Testing things out is a good way to see what works and what doesn’t for you. However, testing things out won’t do much if you cannot understand or analyze the data. There are four main ways to measure ad performance: CPM, CTR, RPM, and RPC.
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CPM refers to the cost per mille (Mille means thousand in Latin) aka the advertising cost per thousand views. Essentially, it acts as a benchmark to calculate the approximate cost of an advertisement or ad campaign in a variety of mediums. It is calculated by dividing how much it costs to place an advertisement by the number of impressions (stated in thousands) that it achieves. CPM helps compare how different advertising opportunities are relatively efficient and to evaluate the cost of the overall campaigns.
CTR refers to Click-through rate and is used as a way to measure how successful an online advertising campaign is for a given website. CTR is shown as a percentage, which is calculated by how many times an ad is clicked divided by how many times an ad is shown. If an ad is shown 1,000 times and is clicked 10 times, then the CTR would be 1%.
RPM means Revenue per 1,000 ad impressions which are similar to CPM but measures revenue instead of cost. Therefore, RPM is kept track of by publishers and CPM is measured by advertisers. RPM is reciprocal to CPM. Advertisers use CPM to measure the cost performance of an ad campaign and publishers use RPM to measure the revenue performance of an ad campaign. If an ad has a low RPM, the publisher can change the ad campaign to an ad campaign that earns a higher revenue and RPM rate. Even though CPM and RPM are slightly different, they can be used interchangeably to give an idea of average revenue for the publisher. You might notice in the blog that I used CPM in the scenario of a publisher. This is because most publishers tend to use CPM so it has become an industry-standard rather than a technical one.
RPC stands for revenue per click and what it does is tell you how much the average revenue is for each click on your ads and PPC (pay-per-click) keywords. This nice little metric is a useful way to see how much revenue you earn every time someone clicks on one of your ads. It is useful to compare RPC and RPM side by side to see money earned vs. money spent. This is helpful to see where you are earning money and where you’re not really earning any money whatsoever.
The more knowledgeable and comfortable you are with these advertising metrics, the better you are able to optimize the advertising on your website in a way that increases your revenue and gives you more control over the future of your website. Each of these ad metrics sheds light on a different aspect of advertising on your website and together paints a complete picture of the beautiful parts and the parts that need a little redoing. There isn’t one correct metric to use for gauging your ad performance. It is important that you use a combination of the metrics that were described in this post.