Posted by: Matt Shanahan
Over the past few weeks, I have been looking at ARPU in isolation. In the upcoming posts, I will examine its composition and its relation to other metrics.
Revenue Per Mille (RPM) is the average revenue generated per 1,000 page views. Cost Per Mille (CPM) is the average cost of per 1,000 impressions. Both metrics are commonly used by publishers to describe their business, but rarely do they discuss them together. For example in the Demand Media S1, they discuss an $11.81 RPM for their owned and operated websites such as eHow.com, but there is no reference to CPM. Yet there is a lot to be learned by comparing input (CPM) and output (RPM).
RPM is basically the “pay”load from ads served up with a page view or the sum of the CPMs associated with the page view. When RPM is significantly greater than CPM, it means there are a lot of ads per page (i.e., an “ad” farm). When RPM equals CPM, it means basically 1 ad served per page view (i.e., premium property). Note: This is over simplification given different ad units and different types of pages, but when averaged over an entire site it is pretty close.
So what does it mean when RPM = CPM? For a visitor, RPM = CPM translates into fewer ads cluttering up the content. For an advertiser, RPM = CPM translates into less competition for the visitor’s attention. For a publisher, RPM = CPM translates into an ability to create better quality content and ad units.
Taken a step further if ARPU = CPM = RPM, it means the average visitor views 1,000 pages in a year or about 19.2 views per week. In this scenario, the visitor gains value from the site; the advertiser can establish brand awareness overtime; and the publisher has a predictable model. Everybody wins.
Getting to an everybody wins scenario is critical to publisher sustainability. Only a few publishers will deliver a blockbuster number of pages views, oversubscribe buys on their ad inventory, and pepper their audience with ads, ads, ads. The vast majority of publishers will be face limitations on page views and audience size. Creating the right balance between ARPU, CPM, and RPM will be important.
