10 {{ upvoteCount | shortNum }}
10 {{ upvoteCount | shortNum }}

Max CPM formulae - which is correct?

by tonywarrior2
8 replies
I have read two different formulae for calculating Max CPM.

1.
Payout * 1000 * CTR * Conversion Rate

2.
Profit * 1000 * CTR * Conversion rate
Where Profit = Predicted revenue - Ad Cost

These formulae could give very different results. I think number 1 is correct.

What do you think?
#calculations #correct #cpm #formulae #max
  • Profile picture of the author HostWind
    Those are calculating two different things..
    One would give you a break even, the other gives you max CPM under the restriction of a certain sales amount. That is an additional constant to work with.
    Signature
    HostWinds
    Inexpensive Web Hosting
    Unlimited Web Hosting
    {{ DiscussionBoard.errors[6934790].message }}
    • Profile picture of the author tonywarrior2
      Originally Posted by HostWind View Post

      Those are calculating two different things..
      One would give you a break even, the other gives you max CPM under the restriction of a certain sales amount. That is an additional constant to work with.
      Hi

      Method 2 is based on EPC.
      Method 1 is based on Payout.

      Does number 2 calculates the break-even CPM?

      If I have:

      CPM of $2.60
      Predicted profit of $7.75
      CTR of 1.35%
      Conversion rate of 2.6%
      The MaxCPM = $2.72

      Does that mean that a CPM of $2.72 is my break-even point?
      {{ DiscussionBoard.errors[6934848].message }}
  • Profile picture of the author HostWind
    Well to be honest, the 2nd one doesnt even make much sense.
    How are you going to input ad cost into a formula that is predicting your.. max ad cost?

    I guess you could say spend a max of 20 bucks, and find out that you need a max CPM of 2 dollars to be at projected revenue - doesnt seem the best way to do it but I guess it works.
    Signature
    HostWinds
    Inexpensive Web Hosting
    Unlimited Web Hosting
    {{ DiscussionBoard.errors[6934908].message }}
    • Profile picture of the author tonywarrior2
      Originally Posted by HostWind View Post

      Well to be honest, the 2nd one doesnt even make much sense.
      How are you going to input ad cost into a formula that is predicting your.. max ad cost?

      I guess you could say spend a max of 20 bucks, and find out that you need a max CPM of 2 dollars to be at projected revenue - doesnt seem the best way to do it but I guess it works.
      Yes both methods are a bit circular because you don't know most of the above numbers until you've collected some data and you can't collect data till you've bought some traffic.

      But if you step back and want a rough idea of your MaxCPM you would need to make assumptions, test them and re-calibrate as you go along.
      {{ DiscussionBoard.errors[6934959].message }}
  • Profile picture of the author HostWind
    Correct.

    Since this is CPM.. I would use a default CTR of .002 - thats .02%. That seems to be roughly 'average' for a normal media buy. From there, I believe offers normally display an average conversion rate, say 15 percent. I would play it safe and go with a smaller number, say 10.

    For example, youve got an offer with a payout of 8 bucks and want to find out your 'max cpm' to break even - 8*1000*.002*.1 = $1.6
    If you notice, this produces only .2 conversions - so if we multiply 1.6 by 5 (1/.2) we get our break even point of 8 bucks.
    Signature
    HostWinds
    Inexpensive Web Hosting
    Unlimited Web Hosting
    {{ DiscussionBoard.errors[6935089].message }}
    • Profile picture of the author tonywarrior2
      Originally Posted by HostWind View Post

      Correct.

      Since this is CPM.. I would use a default CTR of .002 - thats .02%. That seems to be roughly 'average' for a normal media buy. From there, I believe offers normally display an average conversion rate, say 15 percent. I would play it safe and go with a smaller number, say 10.

      For example, youve got an offer with a payout of 8 bucks and want to find out your 'max cpm' to break even - 8*1000*.002*.1 = $1.6
      If you notice, this produces only .2 conversions - so if we multiply 1.6 by 5 (1/.2) we get our break even point of 8 bucks.
      Thanks for that. When I plug your numbers into Method 1 I get the same result of course.

      I think understanding the stats is absolutely vital when working on CPA / media buying projects and should be fully understood, hence my original question.
      {{ DiscussionBoard.errors[6935193].message }}
  • Profile picture of the author HostWind
    I believe it can certainly be useful.

    For method 2, to find out your max cpm if you want to make X profit.. Just subtract it from your original sale amount.
    For example, if you want to make 3 dollars off of each 8 dollar sale, plug 5 in for "profit" instead. Remember this is on a per-sale basis though.

    The way you have it laid out in your 1st post is misleading.
    Should be: Sale price - wanted profit per sale
    Signature
    HostWinds
    Inexpensive Web Hosting
    Unlimited Web Hosting
    {{ DiscussionBoard.errors[6935234].message }}
  • Profile picture of the author Jos Espo
    My algorithm optimizes CPM yields automatically... You can monetize webpages properly.
    Here: https://ssh-x.com (Not affiliate - free to join)
    {{ DiscussionBoard.errors[6961253].message }}

Trending Topics