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Reply with quote  #1 
Hello Everyone,

I noticed that a lot of members have been asking questions around CPMs and why their earnings are quite low and are generally curious to understand how the ecosystem works.

I wanted to write this post to better explain how monetisation works, how ad-networks operate and why you may see fluctuations in CPM/earnings. Hope the following helps

Disclaimer - I work for a network 

As you are aware, there are 3 key players in the ad-tech ecosystem

1. Advertisers
2. Networks
3. Publishers


There can be different kinds of advertisers with different key objectives working on different business/payments models. The most common business/payment models for advertisers are 

a. CPM -This is cost per 1000 impressions. This model is most common for brand advertisers.   
b. CPC - This is cost per click. It was a very common model about 1-2 years ago. It is still common with brand advertisers but not for user acquisition advertisers
c. CPCV - This is cost per completed view. This model is also most common for brand advertisers
d. CPI - This is cost per install. This model is the most widely used for User Acquisition campaign
e. CPA - This is cost per action. This model is also widely used for User Acquisition campaigns


This is the most critical part to understand how a publisher's revenue/CPM gets impacted. 

Networks are in the business of making money by acting as an intermediary between advertisers Or publishers. Till about 3-4 years ago, it used to be a simple business because even User Acquisition advertisers would buy traffic based on CPC and publishers were also paid out on CPC. The networks need not have a lot of intelligence as you could simply match the CPC pricing between an advertiser and publisher to evaluate the profitability of serving an impression.

As the ad-tech ecosystem evolved, CPC pricing from advertisers(specifically UA advertisers) changed to CPI pricing for advertisers and CPM pricing for publishers. 

Advertisers & Publishers ofcourse want to be risk free by buying inventory at CPI and selling inventory at CPM. This led to marked shift in ad-tech ecosystem because non-intelligent networks could not make the economics of getting paid at CPI and paying publishers on CPM work.

With this new approach, only networks who can leverage intelligence and data to increase conversion rates had a sustainable business.

Note on Conversion Rate: There are 2 kinds of conversion rates. CVR & CVM. CVR = installs/clicks and CVM = installs/impressions

As this shift happened, most forward looking networks became a complete pass-through network while some have still stuck to their old models. It is important to note, that networks make business by taking a percentage cut of the money that advertisers pay them. Lets call this network margin. So here's how a typical flow of money will look like for a hypothetical network which takes 40% as network margin. 

Sample Case

Incoming money from advertiser = $100

Network Margin(@40%) = $40

Paid to publishers(@60%) = $60

Now, lets cover different scenarios based on pricing model(CPM, CPI etc) that the advertiser money is coming it at 

a. CPM Pricing Model - This becomes a simple model for networks to pass money to publishers after taking their cut. Lets add pricing model values to our sample case numbers. Lets assume CPM given by advertiser to network = $10.
This means that the advertiser is looking to buy 10,000 impressions with a total budget of $100 at $10 CPM pricing. 

The campaign goes live on the network and the advertiser starts getting impressions for their campaign from different publishers based on their user targeting(for e.g. the advertiser may say they want to target only females 25-34 Or they may want to target users who are inclined to Fashion accesories etc). Lets say the campaigns gets impressions from 3 publishers 

Publisher A:- Total Impressions = 2,000
Publisher B:- Total Impressions = 3,000
Publisher C:- Total impressions = 5,000

Since this was a CPM campaign, we can easiliy calculate the earnings and CPM for each publisher

Publisher A:- CPM to publisher = $6($10 provided by advertiser, $4 taken by network as margin). Earnings to publisher = ($6*2,000)/1000 = $12

Publisher B:- CPM to publisher = $6($10 provided by advertiser, $4 taken by network as margin). Earnings to publisher = ($6*3,000)/1000 = $18

Publisher C:- CPM to publisher = $6($10 provided by advertiser, $4 taken by network as margin). Earnings to publisher = ($6*3,000)/1000 = $30

b. CPI Pricing Model - For this case, lets assume that the CPI given by advertiser = $2. This means that even though there's a budget of $100 from advertiser, they're actually only going to pay $2 per install. This is where the real strength of networks comes to fore(Network intelligence, targeting, user segments etc)

The campaign goes live on the network and the advertiser starts getting impressions for their campaign based on the intelligence of the network. The higher the intelligence of the network, higher the CVM delivered for a specific campaign.

Note: What do we mean by intelligence of the network. If we consider our case, the network has to deliver 50 installs to the advertiser at $2 CPI. A network will have a lot of publishers and apps to choose impressions from. This choice is where network intelligence becomes evident. If I have 10,000,000 impressions to choose from, which impressions should I choose so that I have the highest CVM. 

To illustrate the difference in revenue/CPM between a CPM priced campaign and CPI priced campaign, lets assume that the network used impressions from the same 3 publishers as discussed in the example above. 

Publisher A:- 12,000 impressions, 10 installs delivered for advertiser 
Publisher B:- 45,000 impressions, 14 installs delivered for advertiser
Publisher C:- 23,000 impressions, 26 installs delivered for advertiser

Now, we know that the network is passing the revenue that they get from advertiser to the publisher after taking their 40% margin which means that the net price per install for this campaign to publishers is $1.2. Now lets simply calculate the CPM & Revenue per publisher 

Publisher A:- Revenue = $12(10 installs * $1.2/install), CPM = $1[($12/12,000)*1000]
Publisher B:- Revenue = $16.8(14 installs * $1.2/install), CPM = $0.373[($16.8/45,000)*1000]
Publisher C:- Revenue = $31.2(26 installs * $1.2/install), CPM = $1.356[($31.2/23,000)*1000]

As you can see that the earnings/CPM of the 3 different publishers are completely different. This happens because of CPI(received from advertiser) <-> CPM(given to publisher) pass through by networks. 

Impact on Publishers

This is the reason why you notice the following in your earnings/CPMs

1. Earnings on some days is 0 whereas on some other days, I get some amount - This is happening because CPI campaigns are taking your impressions but no install is being generated hence your revenue remains 0. The days you see earnings for, some advertiser got an install for their campaign on your inventory and hence the network now shows that you received money = [($CPI * no. of installs delivered)- network margin]

2. CPMs on small inventories are lower as compared to advertised by different network - This typically happens because you may not get any advertiser install on small inventories. As your inventory increases, this gets hedged by an increasing number of different ads running on your inventory and each ad getting enough impressions for the system to learn(for intelligent network) and optimise delivery for certain kind of campaigns which convert well on your inventory(read as high CVR/CVM)

This is what I would like to share for now. There are a lot of other nuances to the ecosystem which might be too detailed for this post. Happy to cover more topics Or deep dive into monetisation if the forum finds the information useful. 



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Posts: 2,230
Reply with quote  #2 
hey Visdalal, thanks for sharing [smile]

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