dCPM and other common online

advertising performance models

What is CPM?
Cost Per Mille. Usually reflects the price of 1000 banner impressions in dollar
currency. Payment depends on the number of impressions solely. For example, a
banner is being shown 200,000 times at CPM of $0.5, means that the payment by
theadvertiser to the publisher would be 200,000 * 0.5 / 1000 = $100.

Advantages
- The advertiser knows exactly how many times the banner will be shown, and
what would be his daily / total costs.
- Common model when buying media against a specific URL / site / ad spot.
- CPM is being prioritized first by ad-networks since the publisher knows
exactly what the expected revenue per impression is.

Disadvantages
- Very weak performance matrix, very weak correlation with sales or leads.
- No indications for the advertiser on banner, campaign or media quality.
- When dealing with multiple sites or ad spots advertiser might receive cheap
media instead of effective media.
- Effective frequency capping is unknown.

Day 1 Day 2 Day 3

Impressions 200,000 150,000 200,000
CPM [fixed] $0.5 $0.5 $0.5
Cost $100 $75 $100

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 What is CPC?
Cost Per Click. Known also as pay-per-click (PPC) from the publisher's point of
view. In this model the advertiser pays for each click made on a banner impression.
Payment depends on the number of clicks solely. For example, a banner is being
shown 200,000 times, and being clicked 1000 times at a cost of $0.08 per click. The
Click through rate - CTR in this case is 1000/200,000 = 0.5%. The cost to the
advertiser would be $0.08 * 1000 = $80. Since the advertiser paid $80 for 200,000
we say that his Effective CPM (or eCPM) is 80/200 = $0.4.

Advantages
- The advertiser knows exactly how many times his landing page / site will be
clicked, and what would be his daily / total costs.
- The banner will be shown until enough clicks are being generated
- Common model when looking for exposure with no direct lead or sale goals
- CPC is optimized quiet fast by optimizing ad-networks to generate high CTR
- Reasonable indicator for banner quality

Disadvantages
- Weak correlation with Sales or Leads
- Dependable on click tracking technology and measurement
- Weak performance matrix, vulnerable to click frauds
- No indication for campaign quality (only banner quality)
- Advertiser might receive cheap media instead of effective media
- Effective frequency capping is unknown

Day 1 Day 2 Day 3

Impressions 200,000 150,000 150,000
Clicks 1000 1500 1000
CPC [fixed rate] $0.08 $0.08 $0.08
Cost $80 $120 $80
eCPM $0.4 $0.8 $0.53

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 What is CPL CPA CPS?
Cost Per Lead / Cost Per Acquisition / Cost Per Sale. In this model the advertiser
pays explicitly per transaction type made by the buyer that resulted from a click on
a banner impression. Payment depends either on the cost of lead, cost of sale or a
percentage of the sale's revenue. For example, a banner is being shown 200,000
times, and being clicked 1000 times. 10 clicks converted to a lead where the
advertiser pays 5$ per lead. The total advertising cost would be 10*5 = 50$.

Advantages
- The advertiser pays according to results only.
- The banner will be shown for unlimited period of time.
- Preferred model for the advertiser. Zero risk on his side.
- Low vulnerability to frauds.
- High correlation between sales and campaign and banner quality.

Disadvantages
- Publisher will not allocate premium media for questionable profit
- Publisher will refuse to work in this model when cpm / cpc models can fill
his inventory
- Dependable on conversion tracking technology and measurement.
- Hard for the publisher to estimate when to stop a campaign

Day 1 Day 2 Day 3

Impressions 200,000 150,000 200,000
CPL [fixed rate] $5 $5 $5
Leads 10 15 12
Cost $50 $75 $60

Note: There are many other Cost Per Action models, like Cost per Call (for cellular
advertising), Cost per Download (for downloadable products), Cost per View (a
common term for video based advertising). Advertisers who claim to support all
available model sometimes use the term CPE – cost per everything.

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 What is eCPA?
In order to explain what dCPM is easily, we need to introduce the term eCPA –
effective cost per action. We add an action count (Lead for instance) to the previous
examples, and calculate how much did the advertiser actually paid for each Lead act.
Lets assume the advertiser is profitable when he pays 5$ per lead.

eCPA on a CPL/CPA/CPS model

Here naturally, the eCPA is the predefined CPL.

Day 1 Day 2 Day 3

Impressions 200,000 150,000 200,000
CPL [fixed rate] $5 $5 $5
Leads 10 15 12
Cost $50 $75 $60
eCPM $0.4 $0.5 $0.3
eCPA [fixed rare] $5 $5 $5

Although the cost per Lead was as desired by the advertiser, the publisher might drop
the campaign receiving only $0.3 eCPM on day 3.

eCPA on a CPM Model

In this case, the eCPA reflects the total cost each day divided by the number of leads.
We can see that the advertiser has very little control regarding the price he pays for
each lead.

Day 1 Day 2 Day 3

Impressions 200,000 150,000 200,000
CPM [fixed rate] $0.5 $0.5 $0.5
Cost $100 $75 $100
Leads 10 15 12
eCPM [fixed rate] $0.5 $0.5 $0.5
eCPA 100/10 =$10 75/15=$5 100/12=$8.3

Here, the publisher might be satisfied with his 0.5$ CPM but the advertiser loses on
day 1 and day 3 paying more than 5$ per lead dropping the campaign as well.

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 eCPA on a CPC Model
Similar to the CPM model, the eCPA reflects the total cost each day divided by the
number of leads. Although sometimes there is some correlation between the number
of clicks and the number of acquisitions, still the advertiser has little control over the
price he pays for each lead.

Day 1 Day 2 Day 3

Impressions 200,000 150,000 150,000
Clicks 1000 1500 1000
CPC [fixed rate] $0.08 $0.08 $0.08
Cost $80 $120 $80
eCPM $0.4 $0.8 $0.53
Leads 10 15 12
eCPA 80/10=$8 120/15=$8 80/12=$6.6

Although the publisher in this example receives satisfactory eCPMs, the advertiser is
not profitable at $8 per lead.

Solution:
Dynamic CPM with a CPA target

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 What is dCPM with a CPA target?
Dynamic cost per mille with a cost per action target. This model is the most
effective and balanced both for the advertiser and the publisher. In this model the
the advertiser continues to advertise as long as his eCPA is under his CPA goal, and
the publisher decides to advertise as long as the CPM he receives is higher than the
competing advertisers. This is why neither the CPM nor the eCPA in this model is
fixed. The following example describes the decision making process:

Day 1 Day 2 Day 3

Impressions 100,000 150,000 200,000
CPM $0.4 $0.5 $0.6
Leads 10 15 16
Cost 100*0.4=$40 150*0.5=$75 200*0.3=$120
eCPA 40/10=$4 75/15=$5 120/16=$7.5

Analysis: On day 1 the optimization process sees that the advertiser is profitable and
even has a margin as he pays $4 for a $5 worth leads. This usually means that by
driving more traffic, more leads can be obtained. On day 2, more leads have been
obtained, advertising still paying under his target lead price. On day 3, even more
traffic is being bought breaking the CPA limit of the advertiser. The optimization
process decides to reduce traffic for the campaign.

Day 4 ... Day 40

Impressions 150,000 ... 150,000
CPM 0.5 ... $0.3
Leads 15 ... 5
Cost $75 ... $45
eCPA 75/15=$5 ... $9

Analysis: The campaign maintains a good balance between the eCPA for the
advertiser and the CPM for the publisher until day 40 where even at the price of $0.3
CPM the campaign is not effective anymore at an eCPA of $9. Publisher cannot
decrease the price since other advertisers bid more and advertiser is not profitable.
The campaign is dropped.

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Advantages
- The advertiser is optimized toward paying according to results only.
- The publisher does not advertise unless advertiser pays minimal price.
- The banner will be shown for unlimited period and unlimited amount of time
as long as being effective for both sides.
- Good balance between advertiser's risk and publisher's profit.
- Low vulnerability to frauds.
- Allows the advertiser to compete over premium media with high CPM at
low risk as long as his campaign is effective.
- Campaign stops automatically.

Disadvantages
- Advertiser has to risk an initial sum before seeing results.
- Dependable on conversion tracking technology.

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