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101 Business model Online Advertising

it’s essential to understand various terms and abbreviated words used to refer to various online advertising programs.  These online advertising programs are offered by many websites and search engines and ad network. Below are the widely used and most popular online advertising programs/terms. So, I decided to write down all about these terms in a simple manner.

CPC (Cost Per Click)
The CPC is the amount of revenue that you earn from each time a visitor clicks an ad displayed on your blog, website, or article.  The advertiser determines how much the CPC for any ad will be.  Some CPC advertisements will be worth more than others depending on the keywords and how much advertisers are willing to bid on their ads, thus having the potential to bring you more revenue for your blog or website per click.  CPC ads are always placement-targeted and can be either text or image ads.

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.


CPM (Cost Per Mile/Thousand)
CPM refers to an online advertising program or model purchased and based on the basis of a thousand page impressions (page views or page loads).  If an advertiser purchases a CPM advertising program at $10 CPM, then that means the advertiser will pay the publisher $10 per thousand impressions.  If you have a blog or website and use a CPM advertising program on it with a $10 CPM, then the advertiser or advertising network will pay you $10 per thousand impressions generated from the web pages on your blog or website.  The total amount paid in a CPM advertising program is calculated by multiplying the number of CPM units by CPM rate.

CPM Unit = (Impressions ÷ 1000)
Total Price ($) = CPM unit X CPM rate ($)
Per Impression cost ($) = CPM Rate ($) ÷ 1000

For instance, one million impressions at $10 CPM equals a $10,000 total amount.
1,000,000 ÷ 1,000 = 1,000 units
1,000 units X $10 CPM = $10,000
Note: The amount paid per impression is calculated by dividing the CPM by 1000. For example, a $10 CPM equals $.01 per impression.
$10 CPM ÷ 1000 impressions = $0.01 per impression

eCPM (Effective Cost Per Thousand Impressions)
eCPM is used to track performance of an article, blog, website, or simply a web page for having various ad units on. You can easily measure the performance of your blog by eCPM. Publishers can use eCPM to compare which advertisers pay the best, which ads and websites perform the best, and advertisers can use it to improve their advertising campaign. You can easily figure out by eCPM how much you are earning from each thousand impressions or views of ads or your blog or website by the traffic.

eCPM = (Total Earnings ÷ Impressions) X 1000

For instance, eCPM for 500 page impressions and $1 total earnings will be :
eCPM = (Total Earnings ÷ Impressions) X 1000
= ($1÷500) X 1000
= $2

CPA (Cost Per Action/Acquisition)
CPA is also known as CPL (Cost Per Lead) and CPS (Cost Per Sale).  It is a specific action-oriented online advertising program or pricing model.  In this advertising, the advertisers pay the publishers for each specified action such as a purchase, signing up for an email or newsletter, a form submission made by each user or visitor through the linked advertisement by the advertisers placed on the publishers’ websites.  The highest payment is usually generated from any sale or purchase.  Payment, however, generally depends on the cost of a sale, lead, action or a percentage of the revenue generated by a sale.

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

CTR (Click Through Rate)
The CTR is used to determine how successful an online ad program is doing in terms of generating clicks from page impressions, page views or queries running on your blog, website, or article.  The click-through-rate (CTR) is the number of ad clicks divided by the number of page impressions, page views or queries that you receive from the traffic to your work.

CTR (%) = (Clicks ÷ Impressions) X 100

For example, if a banner ad displayed 100 times and one person clicked on it, then the resulting CTR would be 1 percent.
CTR (%) = (1 ÷ 100) X 100 = 1%

CVR ( Conversion Rate )
The average number of conversions per ad click, shown as a percentage.Conversion rates are calculated by simply taking the number of A conversion happens when someone clicks your ad and then takes an action that you’ve defined as valuable to your business, such as an online purchase or a call to your business from a mobile phone and dividing that by the number of total ad clicks that can be tracked to a conversion during the same time period.

For example, if you had 50 conversions from 1,000 clicks, your conversion rate would be 5%, since 50 ÷ 1,000 = 5%.

If you’re tracking more than one conversion action, or you choose to count “Every” conversion, your conversion rate might be over 100% because more than one conversion can be counted for each click


With each online advertising program, there is a purpose for both the advertisers and the publishers.  Getting familiar with each of the various online advertising programs can educate the publishers in particular to help monetize their blogs, websites, online stores, articles, ads or web pages in general.  Publishers can make money through these online ads and advertisers can generate business, as well as an increase in brand awareness leading to making money.



Source: inthow, knowonlineadvertising, yurtopic