Basic Formulas in Internet Advertising

It’s true mathematics never leave you and so not even in online industry it has spared you , so let’s have some clear picture with examples of the formulas used in online world so that you know well how things are working in online advertising industries ..(formulas in internet advertising)

  • CPM CALCULATION : 

cost per mille (1000) – This is one of the most used metrics on the web. It is the cost that has to be paid by an advertiser  for serving 1000 impressions .

Example :In a campaign , say an Ad of 728×90 is running and the CPM set is $5 and the impressions to be served is 2,00,000 , what will be the actual cost to  the advertiser ?

The formula for CPM goes this way :

Cost to an Advertiser = CPM x (Impressions / 1000)

using the above metrics :

Cost to an Advertiser= 5 x (2,00,000/1000) = 1000

So , $ 1000 is what the advertiser has to pay !

When CPM needs to be calculated : use the final cost.

CPM = Cost to an Advertiser x 1000 / Impressions .

  • CPC CALCUALATION :

As we know we have different rate models in online advertising , CPC – cost per click is one of the popular and well known used metric . Here the advertiser has to pay as per clicks and not on impressions . The page views can be any number , as the advertiser is concerned about clicks here .

Example : Suppose a campaign having 300×250 size banner running at CPC of $2 and the number of clicks the Ad has got is 1000 , what is the amount that the advertiser has to pay actually ?

The formula for CPC goes as below :

Cost to an Advertiser : CPC x number of clicks

using the above metrics ,

Cost to an Advertiser = 2 x 1000 = 2000

So , $ 2000 is what the advertiser has to pay !

CPC = Cost to an advertiser / number of clicks

Also , Cost = Impressions * CTR * CPC.

  • CTR CALCULATION :

CTR is click through rate , it measures the effectiveness of any advertisement . It is calculated by using a simple formula as below :

Example  : A campaign having 728×90 Ad has served 10,000 impressions and has generated  100 clicks so what will be CTR of that Ad ?

CTR = (number of clicks / number of impressions) x 100

using above metrics ,

CTR = (100/10000) x 100 = 1 %

1% CTR means on every 100 impression there is one click.

  • CR CALCULATION :

CR is conversion rate , to calculate the conversion rate a simple formula is used :

CR = (number of conversions/Impressions) x 100 ,

so if number of conversion made are 20 in 1000 impressions , the conversion rate will be (20/1000)*100 = 2 %

  • CPA CALCULATION :

Another metric that we have and is generally used is cost per acquisition which is irrespective of impressions and clicks both .This metric deals with any action or basically when something is acquired like user sign up or when any sale is made.

Cost to an advertiser = CPA x ( Impression x CTR X CR  )

Suppose CPA is $5 , number of impressions is 10,000 , CTR is 3% and CR is 2%.

using the above metrics ,

Cost to an advertiser = 5 x ( 10000 x 0.03 x 0.02 ) = $30

Similarly , if you know the actual cost , we can easily calculate the CPA for the Ad using the below formula :

CPA = cost to an advertiser / ( Impressions x CTR x CR )

Also , Average Cost Per Acquisition (CPA) = Average Cost per Click / Conversion Rate

Some more formulas that are used :

CPL / CR = CPA or
Cost Per Lead divided by Conversion Rate = Cost Per Acquisition

and,

VPA – CPA = NP or
Value Per Acquisition minus Cost Per Acquisition equals Net Profit.

  • CPV CALCULATION :

CPV is cost per visit which is new with respect to CPM, CPC and CPA but is now commonly used by compnies. The costing is done as per the actual visits.

CPV = Total cost of the campaign/ Number of total visit or incremental visit after the campaign started

Suppose, the total cost is $1000 and the visit increased from 50 to 250 visits so incremental visit is equal to 200.

Applying the above numbers in the CPV formula, we get

CPV = 1000/200 = $5

i.e. Each visit cost is $5 to the advertiser

  • eCPM CALCULATION : (Effective cost per mile)

Effective CPM is the actual CPM that is being applied , If the CPM set is $2 and the eCPM is $1.5 , the net profit is $0.5 . eCPM helps you measure how well your ads are performing.It is calculated by dividing total earnings/total spend by total number of impressions in thousands.

eCPM = ( Total spent / Impressions delivered ) x 1000

Example : An ad size of 728 has delivered 213456 impressions and has also spent some $300 with CPM set as $1.5, what will be the eCPM ?

Using the formula ,

eCPM = ( 300 / 213456 ) x 1000 = $1.40

We can also calculate eCPM using eCPC , but for that we need to know the conversion rate. and than using the formaula as below :

eCPM = eCPC x conversion rate x 1000

  • eCPC CALCULATION :

eCPC, is a metric used by Internet marketers to calculate the effectiveness of their online campaigns when the rate model used is CPC . eCPC can also be termed as ” profitable per click” so if the actual CPC is $2 and the eCPC is coming as $1 per click , than $1 is the profit on each clicks .

Net profit = CPC – eCPC

eCPC = (Total spent or revenue / clicks)

Example : If eCPC needs to be calculated for a single Ad size say 300×250 , we just need to figure out how much the Ad size has spent and how much clicks it has generated , so if it is like $200 has been spent and the clicks generated are 100 with actual CPC set to $3 .

using the formula ,

eCPC = ( 200 / 100 ) = $ 2

So , net profit = ( 3 – 2 ) = $1.

  • eCPA CALCULATION :

eCPA is effective cost per Action which is calculated same as eCPC and eCPM , It is the total spend by the total number of actions(i.e conversions) acquired .

Example : The total spent on the campaign is $2000 and the total number of conversions made is 200 , what will be the eCPA ?

Formula of eCPA ,

eCPA = Total spent / number of conversions or actions

Using the above metrics ,

eCPA = 2000 / 200 = $ 10

 

34 thoughts on “Basic Formulas in Internet Advertising

  1. Sridhar

    Hi,

    I found that the CPM, CPC, CPA etc… missed abbreviations.
    Cost per thousand impressions- CPM.
    Cost per click- CPC.
    Cost per action-CPA.

    • Thanks for your help Sridhar 🙂

  2. prathap

    could you please provide formulae for eCPM,eCPC,eCPA .

  3. Hi Prathap , I have updated the page with the formulas and example of eCPC , eCPC, and eCPA .. Please let me know if you need any help and clarification .

    Enjoy surfing 🙂

  4. Prathap

    Why we using Iframe tag in creatives?
    And how to identify the flash and video creatives.

  5. Subhransu Sekhar

    Really helpful for Online advertising domain.. Thank you:)

  6. Prathap

    Could you please provide formulae for CPV,and how to calc CPV to eCPM.

    • Hi Prathap,

      I have updated the formula for CPV, v as visit and not views. Let me know if you need the formula for cost per views.

      Regards,
      Avinash

  7. Sridhar S.

    Hi,

    The CR rate has been wrongly updated for that example mentioned above.

    For 20 conversion in 1000 impression, it will be 0.02 but the conversion rate is 2℅. I think you missed to multiple by 100.

    Please let me if my understanding is wrong.

    Thanks,
    Sridhar S.
    9972482838

    • Hi Sridhar,

      Thanks for the catch, a simple miss changing the result, it should be 2% and not 0.02%.
      You are perfectly correct.

      Regards,
      Avinash

  8. Subhomoy Goswmai

    Hello i have registered with an ad network and they have shown me the statistics which i felt to understand…

    Can any1 plz help me to explain it to me what does it mean.

    The url is : http://picturespk.pk/images/vi

    I know how to calculate CPM , CTR, eCPM

    but as per ecpm we have to know sites previous income but from the above pictures how they have calculated my precious income…

    I have created my account this 16 may…

    plz explain how the earnings and ecpm is calculated from my picture…

    Thank u in advance…

  9. I just want to know the mean of conversion and found online answer here:

    Getting someone to open an email is a conversion. Having them click on the call-to-action link inside that email is another conversion. Going to the landing page and filling out a registration form to read your content is a conversion. And, of course, buying your product is the ultimate conversion.

  10. John

    Hi there,

    I have couple of questions and doubts regarding these metrics. Can I have a short chat with you to resolve them?

    Thanks

  11. matt

    hi, guys
    i have registered at a very good ad network and it is very easy and reliable .
    make high profit rate for traffic to my site .
    try it

    https://yexad.com/signup.php?ref=robert

  12. Awesome, a very simple calculation formulas. Thanks for sharing.

  13. Ankita

    Hello Friend!
    CPM is not cost per mile. It is cost per thousand impressions.
    A lot of people read this and get confused, so I would request you to change this in your article.

  14. Hi,

    I have the Impression’s & CPM . Kindly help me to find out the Number of users and Page view’s

    For Example : Impression’s : 24000 & CPM unit cost is 120
    Answer : ???????????

    • Hi Deepu,

      There is no hard and fast rule or formula for page views and visits but more of a appropriate estimation, below is the working:

      Impressions 24000
      CPM 120
      Cost 2880
      CTR 0.20% (Banners)
      Clicks 48
      Estimate (Click to visit) 50%
      Visits 24
      Page Views (Generally 45%+ of Visits) 53

      Let us know in case of any query

      Regards,
      kOA

  15. yogesh

    Great Keep it up 🙂

    • Thank you Yogesh

      • yogesh

        welcome 🙂
        Actually i am php web developer and i want to learn digital marketing, How i start it will please give me some advises 🙂

  16. thanks for sharing basic formulaes for internet marketing with live examples

  17. Mariam

    Helpful thank you

  18. […] Understanding the basic digital marketing equation, which is to convert visitors into paying customers: […]

  19. Stacey Hay

    Can you please tell me formula to work out cost per unique CPU?

  20. Laura Buragaitė

    Hi, can someone help to immediatelly?
    I have clicks – 100
    impressions – 750
    pay for the click – 0,2 eur
    pay for the impression 0,1 eur
    I need to find –
    CPC – i need answer in amount of euros and units;
    CTR %
    CPI (cost per impression) – i need answer in amount of euros and units

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