It’s true mathematics never leave you and so not even in an online industry it has spared you, so let’s have some clear picture with examples of the formulas used in the 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 CALCULATION :

As we know we have different rate models in online advertising, CPC – cost per click is one of the popular and well known used metrics. 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 the number of conversions made is 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, the 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 the cost per visit which is new with respect to CPM, CPC, and CPA but is now commonly used by companies. 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 the 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 at $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 then using the formula 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, then $1 is the profit on each click.

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 the effective cost per Action which is calculated the 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

  • Estimated LTV (LifeTime value) of a user:

eLTV = Avg. Purchase per Year * Avg. Purchase Size * Loyalty Duration in Years

eCAC = Time & Money Cost of Acquition / Number of Customers Acquired

62 thoughts on “Basic Formulas in Internet Advertising”

  1. Hi,

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

    Reply

  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 🙂

    Reply

      1. Yes please share for CPV too and also would like to ask how to calculate CPM from CPV (cost per view)

        Reply

  7. 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

    Reply

  8. 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…

    Reply

  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.

    Reply

  10. Hi there,

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

    Thanks

    Reply

  13. 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.

    Reply

  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 : ???????????

    Reply

    1. 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

      Reply

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

        Reply

  19. 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

    Reply

  21. In your formula for eCPM you wrongly put ‘Conversion Rate’ instead of CTR.

    So the formula should be:
    eCPM = CPC * CTR * 1000.

    Reply

  22. In the formula for CR, are the conversions the total of people that clicked on the ad?

    For example out of 1000 impressions there are 100 conversions.

    Does that mean that 100 people clicked on the ad? If so, how do you determine the number of conversions?

    Reply

    1. Not really, it could be view through conversions also which accounts basis the last for first view i.e. impressions and not clicks. Also, it is impossible that all clicks can convert to conversions, the average percentage is around 2-5% which also differs depending on what the final conversion is.

      Regards,
      kOA

      Reply

    1. Hey,

      The simplest way to calculate is divide the cost spent on lead placements by total numbers of leads collected. You need to funnel the complete media plan and then look at the effective cost spent and also look at the lead quality to exactly relate it to ROI.

      Regards,
      kOA

      Reply

  26. Hi,I just want to know that if suppose i want to advertise my education institute in india ,then what amount i have to pay to the advertisement agency and what are the standard rate of advertising an add in india

    Reply

    1. Hi Sagar,

      If you look to get it done by an ad agency, then they work on commission percentage which completely varies, but you can take an average of 5% of total net spends. If the institute is not very big, please manage at your end as the learning plus transparency would be high and you would know the next steps to make the business grow. If you are not much aware of advertising, take consultancy from known media friends and go ahead yourself.

      Regards,
      kOA

      Reply

    1. Hey, CAC has a simple formula of dividing the total cost by total acquired customers. The best way to calculate the same is always weekly so that you can get to know the fluctuation of CAC. All the metrics you provided can also be well used to calculate the same, but it has to be one strategy. Was the buying done on CPC or CPM?

      Reply

      1. We need to derive the formula using CPC, CTR and CPM. So baiscally caluclate the cost using CPC and CTR, using which we need to put the same in CAC formula which is cost/no. of acq. and we need to assume here that when we run CPC 0.2% is our conversion rate. Using the same we can calculate the CAC.

        Reply

  30. Hi, I urgently need help calculating the conversion ratio. Any formula please?
    Find the conversion ratio for the following:
    Impressions: 847,381
    Clicks: 435
    Total Spend: $152.53
    Conversions: 2

    Conversion Ratio: 1:1 !!! not Conversion rate

    Reply

  33. I need a help with this:

    A recent campaign you made had the following results:
    – 1 500 000 Impressions
    – CTR: 1,9%
    – CPC: 4,60 Euro
    Once on your website, you were able to comvert 5% of the costumer who clicked on the ad. Approximately 52% of those, who bought, were new costumers. 40% of tee orders have been returned, the average order value was 750 Euro.

    a) What was the total campaign spend? (I calculated = 131 100 Euro, but i’m not sure)
    b) What was the CPM for this campaign? (87,4 Euro also not sure)
    c) What was the total sales revenue generated? (I can not calculated)
    d) What was the cost per newly acquired costumer?
    e) What is possible measures ypu could apply to (i) increase the CTR (ii) increase the Conversion Rate?

    Thank you for the help!

    Reply

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