How CPM rates are decided (and improved)
Every publisher knows that impression CPM rates vary from one site to the next. Attentive publishers will also be well aware of how much rates vary day to day even on the same ad unit. Whilst these effects are well-known, it isn’t always as clear why there is such variance in the price of an impression.
Understanding what influences CPMs is the key to forecasting and even improving them. Through this post I’ll outline the key areas that decide the CPM you get paid and provide a starting point for further reading on some of the topics that we have previously covered in more depth.
What decides open auction CPM – the short version
Open auctions (through AdSense, AdX or other exchanges and networks) are decided by second price. That is the winning price is one penny more than the second highest bid. Having an advertiser willing to pay $100 CPM is of little use if they next highest bidder is only willing to pay $0.10. They’ll pay $0.11 CPM and would have been far better off with 2 advertisers willing to pay $1 (final price $1.01).
The short answer then is that you CPM rates are decided by:
- The price advertisers are willing to pay, AND
- The number of advertisers willing to pay that price
What influences price and demand? (the long version)
That’s great in theory but doesn’t provide much actionable insight into how to increase CPM rates. What is it about particular impressions that makes them more desirable to more advertisers? At OKO we think about four key areas when helping publishers increase CPM rates: Audience, Context, On-page and Environment.
Audience factors influencing CPM
Advertisers are paying to reach your audience, but not all audiences have the same potential to advertisers. What is a “high value prospect” will differ from advertiser to advertiser, but there are some common factors:
As a general rule, audiences in English speaking countries tend to command the highest rates and the US have a considerable lead at the head of the pile.
Geographic differences in CPM rates are influenced not just by the spending power of the individuals in those countries, but by how established the online adverting market is in those countries. Although the two tend to follow one another, there are territories where spend is high by the big international networks don’t have good demand.
As users browse the web they leave behind a trail of Cookie crumbs that smart advertisers can use to better target ads towards them. Advertisers who are more confident in being able to convert a user will bid more, so these Cookie trails help increase CPMs. Interest level cookies (“This user visits travel sites”) as well as re-marketing cookies (“This user had an item in their cart for this advertiser”) both help.
It’s worth also being aware that in-app (such as the browser opened from the Facebook app) browsers don’t share cookies with the main device browser, which can limit the amount of targeting data available to them. This often results in a CPM difference between social traffic and that arriving from other sources.
Whilst users now spend more time on mobile devices than desktop, the way these devices are used does vary. We’re more likely to complete transactions on desktop devices and least likely on mobile due to the way the user experience differs. This means that desktop users, who are more likely to about to transact, tend to command higher rates.
Device also influences performance in a less direct way. Limited screen size, connection speed, data costs and the generally different user experience also conspire to keep CTRs on mobile devices lower (particularly if you discount accidental clicks), which has a predictable impact on rates.
Contextual factors influencing CPM
Whilst advertisers are paying to reach an audience the context of that audience influences the value of each impression.
Topic / Niche
Contextual and placement targeting allows advertisers to reach audiences with known interests who they might not otherwise be able to identify. This is why sites about high-demand topics (such as finance) can command high CPMs even if that same user could be reached for less elsewhere.
Even within a vertical, the subtleties of context have influence on the price of impressions as the intent of that audience is important. Users closer to making buying decisions are of greater value as they are more likely to bring a measurable return. Take the example of a gadget/electronics site: CPMs might be higher on buyer guides or price comparison sections than within general articles about new gadgets hitting the market as the audience for those articles will be closer to the point of purchase.
Quality of ad space
Advertisers (particularly those deep pocketed brands) want to be sure that their ads appear in quality places. Well designed, quality websites with brand safe content are a more attractive prospect and attract rates to match.
On page factors that influence CPM
The choice of ad-format can have a significant impact on CPMs and is one of the easier factors for publishers to influence. Larger ads tend to attract higher bids, but demand tends to centre on a few tried and tested units. For this reason large formats tend to perform better where there is strong, consistent demand, but popular units like the 300×250 can outperform larger ones when demand is more limited.
Beyond size, the format types also has impact. Video ads (for example) will attract stronger bids than images.
Advertisers paying by impression are understandably inclined to pay more when they know that those impressions actually get seen. For CPM bids coming from AdWords the default is that advertisers only pay on viewable impressions, so viewability (measured in AdSense/AdX through Google’s Active View score), is vital and average CPMs will tumble for units that are not getting seen.
Viewability does not necessarily mean ‘above the fold’. The key is to have ads where users linger.
Send quality, converting traffic to advertisers and you will be rewarded with a lift in CPM. Send them junk traffic and accidental clicks and the reverse is true. Advertisers (and the agencies that run their accounts) are smart players with far more developed tools than we are used to on the publisher side. They know what traffic works for them and don’t mind paying more for it.
Within the Google ad system Smart Pricing further reinforces the value of performing traffic (and lowers the value of poor performing traffic). Thanks to conversion tracking that Google offers to advertisers, they know exactly what traffic brings value to their advertisers which feeds directly back in to the maximum bid that the advertiser will pay.
Ads on page
A publisher earning $1000 for an ad on page can will rarely hit $2000 by adding a second unit. It is more usual that each additional unit pays less than the last and lowers the average CPM. There are a number of reasons for this: A change in the supply/demand balance in the auction, user attention being split between multiple units and advertisers preferring to appear on more sparsely monetized pages. The net impact though is that adding additional units to a page might increase page CPM, but will likely lower impression CPM at the same time.
Click Through Rate
The CPM of any publisher receiving significant CPC bids (which includes most AdSense publishers) will be greatly influenced by the CTR of their ad units. Whilst an ever higher CTR doesn’t always equate to long-term increases in CPM (see Smart-Pricing, above), a unit receiving fewer clicks than it legitimately could will certainly earn less.
Even when publishers are paid CPM those rates can often be influenced by Click Through Rate. Many demand sources (such as AdX) include CPC bids which are translated back to CPM for the purpose of the auction. Even in pure CPM networks many advertisers will big higher on for impressions in placements with stronger CTRs.
Environmental factors impacting CPMs
As hard as we try, there are many factors outside of our control that impact CPMs.
CPM rates in quarter 4 are the most obvious reflection of seasonal impact on CPMs. With retailers bidding hard to win traffic in the gift-buying season, rates push up almost across the board. Different verticals and different geographies also have their own seasonality. Family travel sites peak at the start of the year, watersports in the summer etc. Whilst there is little you can do about seasonality beyond attracting traffic from areas where the seasons differ, understanding them helps make sense of the numbers.
As with most areas of business, spend is influenced by how confident the businesses are about the future. In a broad sense, bids can be impacted by global and national economic certainty. The same also happens within niches. The real-estate niche, for example might experience higher bids and increased demand at times when the property market is more buoyant and drop off when it is quieter.
The quarterly buying cycle
As you attract more brand spend on your ad inventory, the impact of the quarterly buying cycle becomes more obvious. Whereas small business advertisers tend to adjust spend continually, brand spend often follows a quarterly cycle. Towards the end of each quarter CPMs can increase as agencies ramp up to meet delivery targets. As the new quarter comes in they can then drop suddenly until campaigns are updated and get running again.
News and events
The supply and demand nature of display ads can result in a double-whammy success for publishers in the right position when a news-cycle goes their way. The impact of increased traffic numbers can be multiplied if advertisers are quick to react and want to capitalise on that traffic.
I could go on…
The fact is that the ad-eco system is both fragile and dynamic and anything that changes that balance of supply and demand can send impression CPMs up or down in an instant. There is also a danger that publishers give too much focus to impression CPM. The highest paid impression means nothing if it isn’t delivered and factors like deliver-ability, latency and website performance can often have just as much impact as any point on this page.
At OKO we encourage publishers to look at the whole picture and measure revenue on a visitor basis. Impression CPM is cornerstone of that, but not the only one that needs attention to ensure that overall revenues are strong. If you would like you find out more about how that might apply to your ad inventory why not book a free consultation with one of our Google Certified experts? If not be sure to subscribe to our monthly bulletin of essential news for ad publishers.