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Ad Optimisation . 20th September 2016

How are CPM rates determined?

What factors influence CPM rates and how can you improve them?

Every publisher knows that impression CPM rates vary from one site to the next.  Attentive publishers will also be well aware of the daily variation in impression CPM rates, even on the same ad unit. Whilst these effects are well-known, the factors that influence the variation in CPM are not always as clear.

Understanding what influences CPMs is the key to forecasting and even improving them. Through this post, I’ll outline the key areas that determine the CPM you get paid. This post will also provide a starting point for further reading on some of the topics that we have previously covered in more depth.

This post was originally published on 20 September 2016 but is frequently updated to ensure its relevancy. The most recent update was 17 June 2020.

First things first, what are CPM rates?

CPM is an initialism for Cost Per Mille, with ‘mille’ meaning one thousand. CPMs are an advertising metric that represent the amount that advertisers pay per thousand impressions. An impression is counted each time an ad is loaded to a user’s device.

CPM = (Total Ad Revenue / Total Impressions) * 1000

CPMs are technically the buy-side equivalent of RPMs (Revenue Per Mille) which are on the sell-side, but the two terms will often be used interchangeably by publishers. Whilst the two metrics are similar, they are not the exact same as there are often many steps between an ad being purchased and an ad being served. Because of these additional steps, the ultimate RPM often varies considerably in comparison to the CPM due to the costs involved.

What determines open auction CPM rates – the short version

CPM rates are decided by two factors:

  • The price advertisers are willing to pay, AND
  • The number of advertisers willing to pay that price

The price advertisers are willing to pay is dependent on a number of factors, many of which are out of our control.

What factors influence the CPM – the long version

So, what is it about certain 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.

Cpm Rates

Audience factors influencing CPM rates

audience

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:

Geography

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 living in those countries, but by how established the online advertising market is in those countries. The two tend to follow one another. However, there are countries with strong economies and high spending power, but a less developed online advertising industry. Therefore, the demand is lower.

Cookies

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 cookies (“This user visits travel sites”) as well as re-marketing cookies (“This user had an item in their cart for this advertiser”) both aid in increasing CPMs.

At the beginning of 2020, Google announced plans to phase out support for Third-Party Cookies in Chrome by 2022, meaning that they can no longer be used to track and target users across the web.

It’s worth also being aware that in-app  browsers (such as the browser opened from the Facebook app) don’t share cookies with the main device browser. This can limit the amount of targeting data available to them, which often results in a CPM difference between social traffic and traffic arriving from other sources.

Device

Although the value of mobile traffic is rising,  we’re more likely to complete transactions on desktop devices rather than mobile devices, due to the way the user experience differs.  This means that desktop users, who are more likely 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.

context

Contextual factors influencing CPM rates

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 well-defined interests, who they might not otherwise be able to identify. This is why sites about certain topics (such as finance) can command high CPMs, because advertisers know that conversions will be of higher value, even if that same user could be reached for less elsewhere.

Audience intent

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. This is because the audience for those articles will be closer to the point of purchase than the audience of an article announcing the arrival of new gadgets hitting the market.

Quality of ad space

Advertisers (particularly those deep pocketed brands) want to be sure that their ads appear in quality locations. Well designed, quality websites with brand safe content are a more attractive prospect and attract rates to match.

Visitor depth

The depth of a session will impact the average CPM rate across impressions. High-bidding advertisers who win an impression early in the session will often have frequency caps that mean that they won’t bid again on later pageviews. The impact of this is that the final CPM of impressions will, on-average, decrease with each pageview of a unique user.

Deeper sessions are of course great as they mean more inventory. However, the lower value of later impressions means that deeper sessions will often return lower averages.

on-page

On-page factors that influence CPM rates

Ad format

The publisher’s choice in ad format is one of the most significant elements that impacts CPMs. Larger ads tend to attract higher bids, but demand tends to centre on a few tried and tested units. Generally, large formats tend to perform better as there is strong and consistent demand. However, popular units like the 300×250 can outperform larger ones when demand is more limited.

Beyond size, the format type also has an influence. Video ads (for example) will attract stronger bids than images.

Viewability

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. This means that 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. Google counts impressions as viewable when “50 percent of your ad shows on screen for one second or longer for Display ads and two seconds or longer for Video ads.”

Past performance

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 them value and this feeds directly back into the maximum bid that the advertiser will pay.

Number of ads on page

A publisher earning $1000 for an ad on page can 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 dynamic between 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 earnings per page viewed, but will likely lower impression CPM at the same time.

Click-Through Rate (CTR)

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 bid higher for impressions in placements with stronger CTRs.

environment

Environmental factors impacting CPMs

As hard as we try, there are many factors outside of our control that impact CPMs.

Seasonality

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.

Economic outlook

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 online advertising ecosystem is both fragile and dynamic and anything that alters the 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 the 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.

Ad Optimisation . Analysis

About Abbey Colville

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