RPM stands for revenue per mille (French for “thousand”). This metric represents a way to express the amount of money that a website is earning each time a visitor arrives or clicks through to a new page. If the RPM is scalable, it also indicates the amount of incremental revenue a site can generate for every additional pageview it receives.
For example, suppose a site is realizing an RPM of $15. If that site is able to generate an additional 1 million monthly impressions, monthly revenue would be expected to increase by $15,000.
RPM is calculated as the revenue from every 1,000 pageview, but could easily be translated to the revenue for each individual pageview. Because each individual pageview on most sites generates a small amount of money, however, it is easier to express the revenue for a larger number. For example, a $15 RPM translates to just 1.5 cents per pageview.
RPM is the revenue of CPM (cost per mille), which represents the expenses paid by an advertiser for 1,000 ad impressions. However, even sites that monetize through non-CPM strategies are able to report their earnings rate as RPM. Consider these monthly revenue figures for a hypothetical site:
If this revenue was generated on 1,000,000 pageviews, the RPM realized would be: $12,000 / (1,000,000 / 1,000) = $12.
Note that even though the site earned money via CPC, CPA, and CPL campaigns, it is still possible to report the revenue in RPM
For example, many sites that utilize display ads participate in CPC-based ad networks. That means that they earn revenue not simply by loading a webpage by by showing a webpage with an ad that a visitor clicks. If they’re lucky, more than 95% of the pageviews will generate zero earnings; the small percentage of pages that contain a clicked ad account for all the revenue.
When judging the earning capability of a site, however, the CPC metric is only a part of the equation. Specifically, that equation looks like this:
Revenue = Pageviews x CTR x CPC
As an extension of the above:
RPM = CTR x CPC x 1,000
In the equation above, there are two variables that the publisher can control: number of pageviews and the click-thru rate. The CPC earned is determined by the network partner, so there is really very little that can be done to impact that number. The publisher can, however, get more traffic (through SEO, email marketing, or other strategies) and can change the frequency with which visitors click on the ads on a page (by changing the positioning and style of these ads).
RPM is used most commonly to discuss the revenue rate associated with display advertising campaigns. But this metric is equally applicable to other revenue streams as well; it can be applied to earnings from mobile ads, email-based ad campaigns, e-commerce, and affiliate marketing.
RPM is ultimately one of the most important metrics to anyone running a web-based business. It’s important to understand the limitations of this number in order to avoid hurting your overall monetization efforts.
Specifically, it’s important to understand that in many cases there are multiple revenue streams that roll up into the bottom line RPM of a site. These revenue streams are often separate and therefore may seem unrelated. But there are often trade-offs between different strategies, which can lead to overestimating the impact of experiments. For example, a site may be using both CPC-based ad networks (e.g., AdSense) and affiliate marketing campaigns (e.g., through CJ Affiliate).
Let’s assume that the site is realizing the following RPMs from these strategies:
Now let’s say this site wants to try out a new monetization strategy: sponsored content. So they implement a widget from Taboola or Outbrain below articles that looks like this:
The idea here is obvious enough: adding this widget to the site will hopefully generate more clicks and help the publisher make more money. If this widget starts delivering an effective RPM of $1.00, that would seem to be a huge win.
But it’s important to also measure the extent to which this ad unit cannibalizes other ad units on the page. For example, it’s very possible that after the implementation of the sponsored content widget the monetization picture for the site looks something like this:
Though the sponsored content widget seems to be a success in this case–it has an RPM of $1.00–the addition of this piece to the puzzle has actually reduced overall earnings. The overall site RPM has dropped from $4.00 to $3.75, meaning that for every 1,000 pageviews the site now has $0.25 less in total revenue.
Scenarios like this happen quite a bit. The sponsored content widget in this case ended up cannibalizing its fellow ad units; many of the clicks it received were not incremental, but simply reallocated from other units.