If you ask most app developers working on ad monetization to name their single most important metric, they’ll undoubtedly say eCPM. This is usually because ad impressions are inherently limited by the product, placement, and user base, whereas eCPM is perceived as being relatively free from those constraints.
This makes sense at first glance, but is eCPM truly the core metric we should be focusing on? If we achieve a high eCPM, can the person in charge of ad monetization say their job is done?
Unfortunately, if you look at eCPM without context, it might not be as useful a metric as you think. In fact, rather than indicating how well you're monetizing through ads, eCPM can sometimes distort your actual performance.
Understanding eCPM and Its Limits
What is eCPM?
eCPM (effective Cost Per Mille) is a metric representing the revenue generated per one thousand impressions. Through it, the person handling ad monetization can figure out how much money they earned for showing a thousand ads to users. It's one of the most widely used metrics in ad monetization, and everyone strives to increase it, but in reality, eCPM is just a lagging price metric determined by the market.
eCPM from a Market Principle Perspective
Like all prices, eCPM is determined at the equilibrium point of supply and demand. Let's take a closer look at both sides.
The Demand Side
Advertisers want to capture the attention of users who are highly likely to react to their ads and convert. This need forms the demand in the ad market, and this traffic is traded in real-time. The higher this demand, the higher the eCPM will be.
The Supply Side
Supply is created by providing impressions on any placement from all the users who enter the app as traffic. The number of ad impressions an app or website can provide determines the supply. What happens if supply increases? If demand is fixed, the price (eCPM) inevitably falls.
The reason eCPM strictly follows market principles like this is that it also follows the law of diminishing marginal utility. Basically, if users see the same ad repeatedly, its effectiveness decreases. Moreover, advertisers don't want to pay for additional impressions for users who haven't responded to their ads already.
As a result, this leads to a drop in the unit price for duplicate impressions. Therefore, increasing supply naturally causes eCPM to decrease. If you simply use eCPM as your sole performance metric, all you have to do is reduce supply and increase demand. However, while you might raise your eCPM that way, maximizing overall revenue would be impossible. Since a loss occurs on the ARPDAU side, it ultimately cannot be called successful ad monetization.
Factors Affecting eCPM
We discussed supply and demand above, but the factors influencing eCPM are more complex than you might think. Without understanding this, eCPM has simply become a metric to blindly increase. You need to look at the factors affecting eCPM from various angles before you can truly confront and evaluate your current eCPM.
1. Ad Format and Placement
First and foremost, the ad format and the placement play a very crucial role in determining eCPM. Depending on the format and placement, you naturally prompt user behavior (clicks) differently, so looking at eCPM without considering this is meaningless.
For instance, you can see that banner ads generally yield a lower eCPM than other full-screen-based ads. The reason rewarded video ads or interstitial ads have a much higher eCPM than banner ads is obviously because they take up the entire screen and hold the user's attention for a longer time, significantly increasing the likelihood of subsequent conversion actions.
Therefore, if you simply want to increase your eCPM, you need to utilize ad formats and placements that can surely grab the user's attention and prompt action. Ideally, rewarded video ads that definitively hold attention for over 30 seconds would be great. But if you plaster your app solely with rewarded video ads, will users even stick around?
Ultimately, you'll end up choosing ad formats and placements that fit your app's UX without harming user retention. Despite this, we tend to simply look at the size of the number when comparing eCPMs. You must always look behind the numbers and keep in mind that eCPMs can vary precisely because the underlying conditions themselves are different.
2. User Characteristics
In the programmatic advertising market, what the demand side cares about most is, of course, performance. App services with users who are likely to deliver high performance on ads will naturally attract more demand.
While there are many user characteristics that demand might care about, demographic info like country, age, and gender are the most fundamental traits. From an advertiser's perspective, they inevitably prefer demographics with high purchasing power, and this is actually reflected in ad targeting. Having many users with these characteristics naturally results in a higher eCPM.
Therefore, to increase eCPM, you must put effort into acquiring users with strong purchasing power. This might actually be far more helpful than an ad monetization manager just trying to boost eCPM directly on their end.
3. Platform OS
If eCPM is high because there's more demand for users with purchasing power, you might think that iOS users, who generally make more in-app purchases than Android users, should command a higher eCPM. And sure, that tendency did exist in the past.
However, the ATT (App Tracking Transparency) framework enforced by Apple since iOS 14.5 completely changed the efficiency of ad campaigns. Using IDFA, the identifier for ad targeting, became difficult, and as conversion optimization faced hurdles, advertisers could no longer hastily increase their ad bids.
As a result, Android, which allows targeting via GAID, currently sees higher eCPMs than iOS. However, rather than simply thinking Android is superior, you need to understand that differing characteristics per OS and per user can also heavily impact eCPM.
4. Ad Creative Blocking
Many publishers block certain ad creatives even while working on ad monetization. Since these ads are shown to our app's users, it's obviously necessary to block ads that might cause discomfort. Also, we must be wary of and block competitors from showing their ads inside our app.
However, you must be aware that the more you block ads, the fewer advertisers are left to compete for your app's ad impression traffic, which can drag down your eCPM.
So if your eCPM is too low, you need to check whether you're blocking too many ads. Of course, blocking ad creatives that users view negatively is a must for a good user experience, but you must remember that excessive blocking can unintentionally lower your eCPM.
5. Mediation
Lastly, mediation is the factor that companies focusing on ad monetization consider more important than any of the elements mentioned above. Because eCPM varies wildly depending on how your mediation is set up, mediation often serves as a yardstick to determine whether you're currently doing a good job with ad monetization.
For example, let's say there's an app using only a single ad network, and another app with a hybrid setup of various bidding and waterfall networks configured through mediation. Naturally, the latter creates much higher demand and subsequent price competition than the former, allowing it to achieve a significantly higher eCPM.
For this reason, app developers consider mediation setup the most crucial ad monetization task and focus heavily on it to boost eCPM. Moreover, setting up mediation once isn't the end of it; they continuously optimize through A/B testing to adapt to the organically shifting conditions of the ad market.
The reality is that all app developers ultimately pursue this direction because they firmly believe they can increase eCPM through mediation. But, as mentioned earlier, since there are various factors affecting eCPM, making decisions to increase eCPM solely by relying on mediation is something ad monetization companies should be highly cautious of.
A Special Case Where eCPM is Crucial: App-Tech Services
Up to this point, I've cautioned against an excessive focus on eCPM, but there's a specific business model where eCPM actually plays a pivotal role: App-Tech (reward-based) services. For these apps, there's a clear value exchange where users watch ads and receive corresponding rewards, making eCPM a core metric that determines the business's profitability and sustainability.
Due to the nature of ad views and reward payouts matching 1:1, eCPM acts as the baseline for determining the upper limit of the reward that can be paid out per ad view. Therefore, rewarded ad services must closely monitor eCPM and design appropriate reward amounts based upon it.
However, for this business model to succeed, it must be able to offer users a sufficiently appealing value proposition. Naturally, rewards that users find attractive must be guaranteed, and if the eCPM isn't high enough, that level of reward cannot be given out—meaning the service itself cannot be sustained.
Ultimately, you could say the success of a rewarded ad service depends on how well you balance eCPM and rewards. Only by carefully analyzing eCPM while designing your unit economics can you run the business successfully.
Wrapping Up
As we've seen so far, eCPM is a fluid metric in ad monetization whose importance varies greatly depending on context and situation. It can be dangerous for the majority of app services to blindly chase eCPM, and attempting to increase eCPM alone without comprehensively considering the various factors we've discussed will actually hurt your overall profitability.
However, in special business models where clear value exchanges occur, such as App-Tech services based on rewarded ads, eCPM can indeed play a vital role as a core metric. Ultimately, the key to successful ad monetization is accurately understanding your service's characteristics and business model, and finding the right balance between eCPM and other important metrics.
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