The eCPC metric is a metric that most VP of business development neglect, but if you will take notice of it, I am sure it would change the way you look at your advertising costs.
So What is The eCPC Metric?
The eCPC, or effective cost per click is a metric that measures the average revenue you get per each click. The click has to be related of course to the generation of the revenue. Thus, the formula of the eCPC metric is basically quite simple:
eCPC = Total Campaign’s Revenue / Number of Clicks
In case you have a campaign that has been running for a while, and has brought $5,000 in revenue for 7,000 clicks the eCPC would be:
eCPC = $5,000 / 7,000 ⁓ $0.71
I told you it is simple to calculate that.
What is the eCPC Metric Important For?
Once you have an eCPC calculated, you know what is the maximum cost per click you are willing to pay in order to keep this campaign profitable. This has an enormous implications on the management of your campaigns since this will be that basis to find cpc channels that would allow you to stay profitable. And the only way to stay profitable in this kind of game is to buy CPCs which are cheaper than the eCPC. Thus, the profit per click will then be:
Profit Per Click = eCPC – CPC
Hence, in case you have a campaign that yielded an eCPC of $0.71 you will be able for instance to pay a maximum CPC of $0.21 and keep the minimum profit per click at $0.5. Pretty cool, ha?
How to Keep The eCPC Metric Aligned When You Use CPM Advertising Model Instead of CPC Advertising Model?
eCPC metric can be computed out of the CPM costs as long as you have the conversion rate (or CR) that led from the click to the conversion. Thus, the formula that converts the impression based values of CPM to eCPC will be:
eCPC = Total Revenue/(Impressions Delivered * Conversion Rate)
As you can see the denominator, impressions delivered*Conversion Rate, is effectively the number of actual clicks which were generated in order to get revenue like in the first formula I have shown you earlier in this article.
If your revenue was $5,000, your campaign delivered 1,000,000 impressions and the conversion rate was 5%. Then the eCPC would be:
eCPC = $5,000 / (1,000,000 * 5%) = $0.1
How Can The eCPC Be Used In Order to Compare CPM & CPC campaigns?
Now that you have two formulas that enables you to calculate the eCPC metric, you can be more informed about making a decision which type of campaign has better performance.
If we’ll go back to our two examples you will be able to see that in the both examples the revenue was $5,000 but in the first option, cpc based campaign, the eCPC was $0.71 while the eCPC for the CPM based campaign is $0.1. Just having these two numbers alone can tell you that even if the CPC was only 1 cent, then the maximum profit for the CPC campaign was $0.7 per click and the CPM campaign would have got a maximum profit of $0.09 per click. It’s an 87% difference in profitability.
That’s a huge difference, and so, financially speaking, the ROI on the CPC campaign is far better than the one you can get on the CPM campaign.
Having that said, you must be aware that the conclusion I presented here does not have to always take place. I am quite sure you’ll find terrific CPM campaigns which will be more profitable than the CPC campaigns, and there will also be cases where you will have a hard both campaigns will perform in a similar way.
Yo! Start to Improve Campaigns Profitability via Improvement in the eCPC Metric & The Maximum CPC
Since the eCPC depends on the total revenue and the number of clicks you can increase its value by manipulating these values. Hence, there is only one option that will allow to achieve this goal and that is to increase revenue while keeping the number of clicks that assist in generating this revenue as low as possible.
This also means you may need to simplify your conversion funnel, have a better offer for your customers, and make sure there aren’t technical problem with your conversion funnel. Yes, you really have to shine in front of your customers.
In addition to that, you must keep your CPC as low as possible. When I say “as low as possible” I mean that there will be times you will find out there is no choice but to pay a high average cpc, or else none of your ads will gain a fair share of impressions, let alone conversions.
Some Caveats on eCPC Metric Optimization, After All, Nothing Can Be That Perfect….
When optimizing the eCPC you have to pay attention that a change in a campaign’s bidding may cause changes in the net profitability. This makes the campaign profitability somewhat unstable and therefore monitoring the following factors is crucial:
a) The connection between the new bid and the profitability is still positive.
b) The average number of impressions that’s being delivered till a conversion happens is at most the average number of impressions you got when you calculated the last eCPC.
c) The conversion rate is close to the one you had before the change in bids.
d) The average position shows that the ads are same spot like in the last period when you calculated the eCPC or has it changed, otherwise you may get less conversions & your eCPC will drop.
I hope I brought into your attention the importance of the eCPC. This metric really changed my point of view on how to make money online. I hope it also changed yours.
Have a great day with lots of opportunities.