Sales And Marketing Skills

Basic Internet Advertising Formulas and Metrics





Here’s a concise summary of essential metrics used in internet advertising, including their meanings, formulas, and examples.


1. CPM (Cost Per Mille)

  • Definition: Cost for every 1,000 impressions.
  • Formula:
    [
    {Cost to Advertiser} = {CPM} * \left(\frac{{Impressions}}{1000}\right)
    ]
    [
    {CPM} = \frac{{Cost to Advertiser} * 1000}{{Impressions}}
    ]
  • Example:
    If CPM = $5 and impressions = 200,000:
    [
    {Cost to Advertiser} = 5 * \left(\frac{200,000}{1000}\right) = 1000
    ]
    Advertiser pays $1,000.

2. CPC (Cost Per Click)

  • Definition: Cost based on clicks, not impressions.
  • Formula:
    [
    {Cost to Advertiser} = {CPC} * {Number of Clicks}
    ]
    [
    {CPC} = \frac{{Cost to Advertiser}} / {{Number of Clicks}}
    ]
    [
    {Cost} = {Impressions} * {CTR} * {CPC}
    ]
  • Example:
    CPC = $2, Clicks = 1,000:
    [
    {Cost to Advertiser} = 2 * 1000 = 2000
    ]
    Advertiser pays $2,000.

3. CTR (Click-Through Rate)

  • Definition: Measures ad effectiveness by click rate.
  • Formula:
    [
    {CTR (\%)} = \left(\frac{{Number of Clicks}} / {{Impressions}}\right) * 100
    ]
  • Example:
    Impressions = 10,000, Clicks = 100:
    [
    {CTR} = \left(\frac{100}{10,000}\right) * 100 = 1\%
    ]

4. CR (Conversion Rate)

  • Definition: Measures success rate of ad conversions.
  • Formula:
    [
    {CR (\%)} = \left(\frac{{Number of Conversions}} / {{Impressions}}\right) * 100
    ]
  • Example:
    Conversions = 20, Impressions = 1,000:
    [
    {CR} = \left(\frac{20}{1000}\right) * 100 = 2\%
    ]

5. CPA (Cost Per Action)

  • Definition: Cost based on specific actions, such as sign-ups or sales.
  • Formula:
    [
    {Cost to Advertiser} = {CPA} * ({Impressions} * {CTR} * {CR})
    ]
    [
    {CPA} = \frac{{Cost to Advertiser}} / {{Impressions} * {CTR} * {CR}}
    ]
  • Example:
    CPA = $5, Impressions = 10,000, CTR = 3\%, CR = 2\%:
    [
    {Cost to Advertiser} = 5 * (10,000 * 0.03 * 0.02) = 30
    ]
    Advertiser pays $30.

6. CPV (Cost Per Visit)

  • Definition: Cost per actual website visit.
  • Formula:
    [
    {CPV} = \frac{{Total Campaign Cost}} / {{Number of Visits}}
    ]
  • Example:
    Total cost = $1,000, Visits = 200:
    [
    {CPV} = \frac{1000}{200} = 5
    ]
    Cost per visit = $5.

7. eCPM (Effective Cost Per Mille)

  • Definition: Actual CPM applied based on performance.
  • Formula:
    [
    {eCPM} = \left(\frac{{Total Spend}} / {{Impressions Delivered}}\right) * 1000
    ]
  • Example:
    Total spend = $300, Impressions = 213,456:
    [
    {eCPM} = \left(\frac{300}{213456}\right) * 1000 = 1.40
    ]
    Effective CPM = $1.40.

8. eCPC (Effective Cost Per Click)

  • Definition: Measures cost-effectiveness for CPC campaigns.
  • Formula:
    [
    {eCPC} = \frac{{Total Spend}} / {{Clicks}}
    ]
  • Example:
    Spend = $200, Clicks = 100:
    [
    {eCPC} = \frac{200}{100} = 2
    ]
    Effective CPC = $2.

9. eCPA (Effective Cost Per Action)

  • Definition: Cost-effectiveness of CPA campaigns.
  • Formula:
    [
    {eCPA} = \frac{{Total Spend}} / {{Number of Conversions}}
    ]
  • Example:
    Spend = $2,000, Conversions = 200:
    [
    {eCPA} = \frac{2000}{200} = 10
    ]
    Effective CPA = $10.

10. Estimated LTV (Lifetime Value)

  • Definition: The estimated revenue generated by a user over time.
  • Formula:
    [
    {eLTV} = {Avg. Purchase per Year} * {Avg. Purchase Size} * {Loyalty Duration (Years)}
    ]

11. Estimated CAC (Customer Acquisition Cost)

  • Definition: Cost incurred to acquire a customer.
  • Formula:
    [
    {eCAC} = \frac{{Time \& Money Cost of Acquisition}} / {{Number of Customers Acquired}}
    ]

By applying these formulas, advertisers can optimize their campaigns, track performance, and maximize returns on investment (ROI).


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