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All about Media Buying Part 3 – Profit calculation

Published by Papa Whale Media Buy

After reviewing the basics of media buying over the last few weeks, the fun part finally begins! Profit calculation!

CR_BLOG_605x300_inthelab-mediabuy-part3

After reviewing the basics of media buying over the last few weeks, the fun part finally begins!  Profit calculation!

Before sending any traffic to an offer, the very least a smart and savvy media buyer can do is choose the plan that will likely generate the most gains. However, like all business models based on human behavior, media buying is not an exact science!

[ictt-tweet-blockquote]Rule No. 1: Never lose money.
Rule No. 2: Never forget Rule No. 1.
― Warren Buffett[/ictt-tweet-blockquote]

Put theory into practice

For example, let’s say that you bought a RON that brings you 4,000,000 impressions for 3 days of traffic. Now that those 3 days have passed, to continue making money now, you need to recognize which offer performed the best for your traffic, and which one turned out to be the most profitable.

In this fictional situation (and to make sure that you’ll get it), we’re gonna say that all costs are based on a Cost Per Thousand (CPM) model.  We learned last week that CPM is the price that you are paying for every 1000 views of your ad.

This kind of price is usually determined by bid price:  You get a higher volume of traffic only if you bid higher than your competitors. It’s a dog-eat-dog world!  Everyone wants the best spots and best deals, so if you want a certain spot, step up to the plate and get it!

By this point, you’ve also successfully AB-tested your traffic on different products and you’ve earned some money now, because well, you’ve been following our advice!

eCPM – Earning per thousand impressions

Now you can calculate the eCPM, which you’ll recall, is your earnings per thousand impressions. In this example below, you’ve earned:

  • 20 cents per 1000 views with your Cam offer;
  • 10 cents per 1000 views with your Dating offer;
  • 5 cents per 1000 views with your Casino offer;
  • and, 15 cents per 1000 views with your Paysite offer.

We’ve also defined the eCPM last wednesday but here’s another way to calculate it :

  1. First, you need to divide your number of impressions by 1,000
  2. Then, you divide your earnings by the number you’ve got in the previous step.
  3. Take the next campaign, Lather. Rinse. Repeat

For example, in the case of your Casino offer :

  1. You divide 1,000,000 by 1,000 which gives you 1,000 (Sounds redundant, huh?).
  2. Then, you divide your gain of 50$ by 1,000.

That’s how you find out that you’ve earned A HUGE 5 cents per 1 000 views.

Even if this calculation looks reaaaally easy in this example, it can sometimes be trickier than it looks because there’s never a guarantee you’ll get round numbers in real life!

 

CPM – Cost per thousand impressions

Now it’s time to find out if these offers were profitable and we’re only going to be able to do so with the CPM – the cost you’ve paid per thousand impressions. In this case, let’s say that, in order to purchase the RON, you’ve bid a CPM price of 0.12$ — this means that you’ve paid 120$ for traffic towards each of your offers:

1 000 – the number you’ve reached in the first step calculating the eCPM – multiplied by 0.12 = a cost of 120$ for 1 000 000 impressions

You can easily calculate your gains or losses from there…

 

OK, while you may not be a billionaire just yet, look on the bright side… this whole media buying thing has netted you 20 bucks!  The key thing here is that you’ve profited and you’re now in the green.  A profit is a profit, no matter the number.  Always keep that in mind.

[ictt-tweet-blockquote]It’s not where you start – it’s where you finish that counts.
–Zig Ziglar[/ictt-tweet-blockquote]

Knowledge is worth its weight in gold now that you know which offers are profitable and which ones are not. The next step is to send your traffic to the most profitable offers which, in the example above, are the Cam and Paysite offers.

Be careful though!  You might be tempted to send all your traffic to the most profitable offer (in this case it’s the Cam offer).  It’s important to remember to never put all your eggs (or in this case, traffic) in one basket.  Strike that balance we’ve talked about before and consider sending 5, 10, or even 15% of your traffic to other offers that may turn out to be the most lucrative, later on!

Cheat sheet to success

You’re going to become successful at media buying by testing alternatives, always.

You never know what’s good and what’s not until you have the numbers to verify it.  Hunches and feelings will only get you so far.  ALWAYS calculate!

A data-driven approach is the foundation to media buying.

To make money, you’re going to lose money at times. You can’t win them all.There’s always going to be unprofitable campaigns, but the important takeaway here is to be smart and methodical enough to globally win – and win in the end.

Apply these practical guidelines to media buying, and you can bet your butt you’ll be flying high with profit and soaring to new heights.

Are you up for the challenge?

 

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