This is Why Most Publishers Are Following the Wrong Metrics
Chris Ingham Brooke
February 4th, 2019
Dry January has come and gone so now is the time to take stock and make sure that you’re on track to hit those 2019 revenue goals. But as much as everyone enjoys half-assing their resolutions, profitability is not something you can fake – insert Fyre festival joke here. The problem in digital publishing isn’t setting goals, though, it’s how to track them. If you’re a runner, you know to track both distance and speed. If you only track one or the other, you’re missing the bigger picture and understandably won’t know what to focus on to improve.
What is CPM?
Digital publishers and advertisers alike think of CPM as the metric to track profitability. CPM (Cost Per Mille) is a commonly used metric in display advertising and performance marketing. Cost Per Mille (Mille being Latin for one thousand) refers to the cost that an advertiser pays for one thousand impressions of an ad. An impression (1 ad unit load = 1 impression) happens when a user’s browser loads an ad on the page. Advertisers pay publishers money and that’s how ads end up in the article you’re reading. In CPM advertising, the idea is that every time an ad is shown, the advertiser pays and the publisher is paid. Understandably, digital publishers have long been obsessed with following CPMs because nearly all of them have an ad-backed revenue model and CPM is responsible for the majority of how display advertising revenue is transacted. In other words, CPM is largely how you get paid. Here’s a quick formula:
- (cost / impressions) x 1000 = CPM
If a publisher charges a $1.50 CPM, that means an advertiser has to pay $1.50 for every 1,000 impressions of its ad.
Why CPM Just Doesn’t Cut it For Digital Publishers
CPM is the Rosetta Stone metric for publishers and advertisers to trade. It’s great that we found a currency for publishers and advertisers to transact, but it’s simply that: a currency. In reality, both parties have very different goals:
Performance advertisers care about conversions (phone numbers, emails and purchases). Digital publishers, on the other hand, should care about the value of their readers (what is the monetary value of a reader?)
A publisher’s business model relies on acquiring an audience (organically or through paid means) and monetizing that very same audience for a profit. In other words, publishers are profitable as long as they make more money than they spend. Simple, right? CPM is how a publisher transacts with advertisers and therefore an important part of the equation. But there’s more to it. We’re not telling you to ignore CPM – we’re telling you that there’s a bigger story here. If you only focus on CPM then you will do so at your peril.
One common myth to dispel is that an increase in CPMs always equates to an increase in ad revenue. For example, let’s say you test a new advertising demand partner. You log into their shiny dashboard and see a super high CPM. Great, right? Not necessarily. If the ad partner is running aggressive ads (pop-unders or in-banner video with sound, for example) then the user may bounce. Why is that bad? Aside from the poor user experience, there’s also a monetary loss. The sum of all the ad revenue across the rest of the pages that the user would have looked at (had they not had a terrible user experience) is greater than the small CPM boost you may have received from running aggressive ads. Sure, those of you in the know could argue that page views per visit might drop (and that might be an indicator) but, again, it’s only part of the story. Worse still, rogue advertisers may hijack the website and redirect users to affiliate offers. On the one hand, this denigrates the publisher’s brand and, on the other, it starves the publisher of much-needed ad revenue. This is one of the many reasons why you shouldn’t be using CPM as your true north. We believe there is a better way.
The Answer is Revenue Per Session (RPS)
Publishers need a simple revenue metric that can easily measure the value of a reader. You need a metric that reflects the business model of monetizing readers at a higher price than the cost of acquiring them. In other words, keep it simple.
Enter Revenue Per Session (RPS). This refers to the total revenue from all monetization partners for a session on the site. A ‘session,’ in case you’re wondering, is simply a website visit. The ‘session’ accounts for multiple pageviews, for multiple ad impressions and across multiple ecommerce purchases. The value of an entire session gives publishers the information needed to refine decisions and maximize profits per reader. Don’t get us wrong – CPMs, Page Views Per Session and Bounce Rates are all important metrics but RPS encompasses them all. It’s the proverbial canary in the coal mine. If your RPS drops then you should start to look deeper to find the cause. Here’s a quick formula to calculate RPS:
- (Number of ad impressions x bid value) / sessions = RPS
As the old adage goes, once you can measure it, you can manage it. Step one, complete. We’re now correctly measuring the value of a visitor to the site.
The Money is in The Weeds
Not only must we look at the publisher’s business model through a different philosophical lens (Revenue Per Session), but we must also adjust our perspective and how we analyze revenue in general. Through our tool, LiveYield, we have observed spreads of over 1,100% in RPS between individual User IDs. User value can be influenced by hundreds of factors, but broadly speaking there are four main techniques to increase RPS. First is increasing advertiser performance metrics e.g. viewability or ad click through rates. Second is increasing the relevance of the audience to advertisers e.g. amplifying recipe content to amateur chefs. Third is yield optimization/ad operations: tweaking price rules, eliminating discrepancies and troubleshooting ads. Fourth is becoming more established and cutting out the middlemen by negotiating direct deals with advertisers. Of course, this is simply the 30,000 ft. view
However, the revenue per session for each user is not static. It can vary by quarter, by month, by day of the week, by hour, by minute and by second. The variance, or spread, is huge. Any good trader knows that whenever there is a massive spread, there is a massive opportunity to profit. For example, if you know that a specific article is unprofitable on Facebook in the afternoon then you can adjust your settings. If you know that a specific OS or browser is unprofitable all the time then you can cut it and focus your efforts on amplifying what is profitable.
There is so much more to say on this topic, but I want to leave you with this: measuring and focusing on RPS will guide you in the journey towards finding your true north. Measuring and influencing all the many variables that affect Revenue Per Session will lead to greater profitability.
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