Am I the only blogger who gets confused by the details of ad network revenues? Do terms like ‘CPM’ make your eyes glaze over? I absolutely love what Stephanie over at The Everyday Blogger is doing. She is doing a series about how ad networks make money that actually makes sense.

“First, Ad Media determines a CPM, a dollar amount for every 1,000 impressions you blogger deliver. Cheese Farms will pay this CPM for their Monterey Jack campaign across Ad Media’s food publisher network which you are a part of.

Let’s say Ad Media charges $10 CPM to Cheese Farms for this Monterey Jack campaign. How Ad Media comes up with that CPM number is a science to them and is influenced on what they think they can get across their food network. What matters is that you food blogger have no say in determining that CPM number. It is what it is. Later on, as you get bigger, you will start to care about the CPM number and I’ll explain more why later in Part II. For now, Ad Media is in control of the CPM determination.

Now, the $10 CPM is a gross number, and not a net number. The revenue split you agreed to in your contract with Ad Media is typically going to be something like 50/50, but it’s 50/50 of a net number, not a gross number like the $10/CPM that Cheese Farms is paying. When you log into your ad reports the CPM number you’re seeing is most likely the net number, not the gross. Your ad network may or may not share the gross CPMs. You’ll have to ask them.

The net number could be anywhere in a typical range from 10-30% off the gross number. So, let’s say Ad Media takes 15% off the $10 gross number which they use to pay for operations things like sales people commissions, and means to run their business. So, that brings the net CPM number to now $8.50/CPM = $10 (gross) x .15 (the 15% operations cut).

So, you blogger, are getting 50/50 of $8.50 not $10. Overall, your share is $4.25/CPM and Ad Media actually gets $4.25/CPM plus the $1.50/CPM for the operations cost which comes to $5.75/CPM. The ad network gets two cuts in essence, first in the gross, and second in the net. So, you really are getting a net of a net. Follow?

$10/CPM Cheese Farms paid (this is the gross)

- $1.50/CPM To Ad Media for operations cost

—————————-

$8.50 Net CPM

Split 50/50 between you blogger and Ad Media

$4.25 To you blogger

$4.25 To Ad Media

At the end of the day, Ad Media gets $5.75/CPM ($1.50 + $4.25) and you get $4.25/CPM. Which is really a 58/42 split.”

Be sure to the rest of her great post just by clicking here.