Ad inventory, ad impressions, fill rate and eCPM are terms that app developers throw around day in and day out. At SponsorPay, we know that the language of digital advertising involves an initial learning curve. In an effort to explain what these acronyms actually mean, we’ve compiled an overview of several concepts that drive the success of any ad monetization strategy. The basic overview below emphasizes the perspective of web and mobile developers employing ad-based monetization in their games and apps.
Developers with free apps available on iOS, Android or the web often leverage advertising to create a reliable, predictable revenue stream. What does this business model actually look like?
Monetizing an app with ads follows a very simple equation:
Amount of ad space that the developer has for sale (ad inventory)
x Percentage of inventory that actually gets bought (the fill rate)
x The revenue a developer receives for 1,000 ads sold (eCPM)
As you can see there are three primary elements here:
A developer’s ad inventory is a term that describes the totality of the advertising space available on a certain digital property. It is the total number of opportunities the developer has to show an ad. In other words, it’s the total inventory the developer can sell to advertisers. Naturally, a developer can increase revenue by increasing the ad spaces in the application, assuming other factors stay constant. That said, it’s critical that ad placement and user experience are always considered.
eCPM or “effective cost per mille” is the amount of revenue received for 1,000 ad impressions. It’s calculated by dividing the amount of ad revenue by the number of ad impressions (when a user is shown an ad) and multiplying by 1,000. For example, if a developer earned 12,500 USD one week based on one million ad impressions, the eCPM for that week would be 12.5 USD. The value is used to compare the performance of ad formats and ad providers, and to evaluate changes in performance over time.
Fill rate is the ratio between the number of times a developer requested an ad to be shown divided by the number of times an ad was actually returned from an ad network or other source. Of course, revenue is only generated when ads are shown, so it’s critical that developers have a high fill rate, lest they forfeit potential revenue. Fill rate = Actual ad impressions / Ad requests
So, how does ad monetization fit in?
Available ad inventory, fill rate and eCPM are the key drivers of any ad monetization strategy. An effective ad monetization strategy aims to increase fill rate and eCPM, thereby allowing a developer to earn the highest revenue from a given app’s ad inventory.
Fill rate is of the utmost importance when it comes to ad monetization because revenue is only generated when an ad is shown. To address the challenge of insufficient fill rate, many developers are turning to mediation. Mediation solutions like SponsorPay’s allow developers to use one platform to integrate, manage and optimize different sources of ads. Meanwhile, developers can let hundreds of demand partners from our Ad Marketplace bid on their ad inventory. These options increase the overall number of ads available to a developer.
Developers also strive to serve ads with the highest eCPM. Holistic yield optimization, one feature of SponsorPay’s Ad Monetization Platform, ensures that the ads that are filling a developers ad requests are always the highest-paying ads available. The goal is not only to optimize, but also to simplify the process for developers. SpnsorPay’s AutoPilot, for instance, enables developers to maximize eCPM automatically in real time, eliminating the need to continually adjust prioritization settings.
Understanding the definitions and relationship of these key concepts is square one in learning more about the accelerating world of ad monetization. It’s an ever-changing environment, but one with endless growth potential. We hope that breaking down these ideas has given you a sense of the challenges faced by developers and the innovative solutions companies are creating to solve them.