Bet you didn’t know anything about CTRs and CPMs and CPAs and all the CPs when you started all this – I know that my brain was blowing up from all these CPs, but in the end – it’s all about focus, right?
So, this blog will be a short one and we’ll help you with winning in this numbers maze and create some kind of a pattern for calculating if your campaigns are making money or not. So, math is kinda important here.
Basic Understanding of Terms 🤓
CTR – Click through Rate, and it is measuring the success of the campaign you have started. You calculate this by dividing the number of users that clicked on an ad by the number of impressions (the number of times the ad was delivered).
CVR – or CR – Connversion rate (Conversion Ratio) and represents the proportion of people who took an action (click, installation, subscription etc.) and the number of impressions.
CPM – Cost per Mille or Cost per Thousand – In most cases in affiliate marketing this refers to the price for thousand-page impressions. For example, Adsense calculates the revenue from ads for websites based on CPM.
CPA – Cost per Action, or Aquisition – here the publisher gets paid only if the user completes the action, for example – installs an extension or an app.
CPC – Cost per Click -whenever the user clicks on an ad or a link the publisher will be paid.
You don’t have to Be Einstein Math-wise 🧠
There are many formulas out there and we can help you list them and you may be able to calculate all the things that are relevant to you.
First you need to see if the traffic sources charge on CPC or CPM – it would be great if you could calculate both ways: If the CPM traffic source is able to give you a CPC as well or if your CPC traffic source can help you calculate your CPMs. Read this sentence once again.
FORMULA: CPC x CTR x 10 = CPM
Example: Let’s assume that a traffic source is charging 1$ per click (that would be awesome right) and your CTR is 1%:
1$ x 1 x 10 = 10$ – so your CPM is 10$.
FORMULA: CPM / (CTR x 10) = CPC
Example: So, our CPM is 10$ and our CTR is 1%
10$ / (1 x10) = 1 – so your CPC is 1$
FORMULA: 100 x No. of clicks / No. of views = CTR
Example: So your analytics shows that you had 20 clicks on a campaign and that 20k people reached your campaign (views)
100 x 20 / 20 000 = 2000 / 20 000 = 0.1% – so this is your CTR
FORMULA: CPM / (CPC x 10) = CTR
Another example: You calculated that your CPM is 10$ and that your CPC is 1$,so:
10 / (1 x 10) = 1 = 1% – so this is your CTR
FORMULA: (No. of Conversions / No. of page views) x 100 = CVR
Example: Let’s say you had 10 conversions and 100 people visited your webpage, so:
(10/100) x 100 = 0.10 x 100 = 10%, so your CVR is 10%.
FORMULA: (Payout x CVR / 100) = EPC
Example: Let’s say your payourtis 5$ and let’s assume that your CVR is 10%, so:
5$ x 5% / 100 = 25 / 100 = 0.25$, so your EPC is 0.25%
FORMULA: CPC x 100 / CVR = CPA
Example: So you saw that your CPC is 1$ and that your CVR is 10%, then:
1 x 100 / 10 = 100 / 10 = 10, so your CPA is 10$.
FORMULA: CTR x CVR x PAYOUT / 100 = eCPM
Example: So, your CTR is 5%, and your CVR is 10%, while your payout is 5$, so:
5% x 10% x 5$ / 100 = 250 / 100 = 2.5%, so your eCPM is 2.5$
Now that you know all the formula’s, it is important that you understand that you need to pay attention to your profit and loss. If it’s going well, that is naturally profit, but if it is negative – again, naturally, loss. And you calculate that with the results of the above-mentioned formulas.
FORMULA: (EPC – CPC) x Total Spend / CPC = LOSS
Example: You spent 200$ on Ads, and the EPC was 0.20$ and the CPC was 0.50 $, so:
(0.20$ – 0.50$) x 200$ / 0.50$ = -0.30$ x 200$ / 0.50$ = -60$ / 0.50$ = -120
This means that you are short on 120$.
What to Do if You Don’t Like What You See?
You can skip this if you like the numbers – but if you don’t, don’t worry – you can optimize your campaigns and then test again. This gives you the opportunity to make some changes and have a positive ROI. We have previously written a blog on what to do to optimize your campaigns – and you can read it here.
Optimize, optimize, optimize. Check your landing pages, check your CTA buttons, check your creatives, your message – question everything. Do some a/b tests and see which one converts best.
And when you do get things straight – you will see profit, and here is how you can calculate it:
FORMULA: (eCPM – CPM) X Total Spend / CPM
Example: So, you spent 100$ on a campain and the eCPM was 20$ while your CPM was 10$ calculate your profit like:
(20$ – 10$) x 100 / 10$ = 10$ x 100 / 10$ = 100$
And well, your profit is 100$ congrats!
This is a blog that you need to bookmark in case you need some math refreshment. Go through it a few times after you start your campaigns and you will be faster and faster with your calculations. We sincerely hope this helped. If you do have some thoughts about this, please share.
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Posted on July 23, 2020