By Liz Shannon Miller
We use a lot of numbers when discussing the business of online video, and buzzwords defining them abound. But at this stage of the game, those buzzwords can be misunderstood and/or misused — oftentimes hurting the less experienced creator.
So to start things off on the most basic level, let’s define two often-used sales terms:
CPMs: The cost an advertiser pays for every 1,000 impressions. (You’re getting a $4 CPM, you hit 4,000 impressions, the advertiser pays $16.)
RPMs: The revenue generated by every 1,000 impressions. (The money received from advertisers, minus all the related costs.)
CPMs are the more commonly used term, but looking at the basic definitions RPMs seems like the number that makes more of a difference to the bottom line. Does that make RPMs more important than CPMs?
Not according to YouTube partner product manager Andy Stack, who revealed during a recent presentation at VidCon 2013 that CPMs and RPMs aren’t necessarily the most important metrics of a YouTuber’s business model.
Rather, during the Saturday panel “How Much Am I Worth: Understanding YouTube Monetization and Determining Your Channel’s Value,” Stack laid out for creators the range of numbers that YouTube provides to measure monetary success — and what they should be looking for.
To break down the difference between CPMs, RPMs, and general revenue, Stack used the analogy of the movie theater business, where YouTube is the movie theater, the YouTube creator is a movie studio, and CPMs represent the prices being set for movie tickets. What are RPMs? The average of the actual money being made from ticket sales and concessions.
What matters the most, though, for YouTube creators trying to make a living off their YouTube videos? RPM multiplied by views — otherwise known as the actual money going into their bank accounts, which can fluctuate.
A few examples laid out by Stack included how a decrease in RPM could be made up for with an increase in view-counts, but taking a sponsorship deal with a high CPM could be a bad deal if it damages your reputation with your audience (thus leading to a decrease in views).
Stack also went over a number of questions that creators should ask when presented with potential new deals with third-party sponsors and networks, such as whether the CPM being offered is gross or net profit, view or impression-based, and what an expected change in viewership might be.
Another important issue was whether a network would be selling its own ads on the creator’s content — which was important, according to Stack, because the performance of those ads would not be measured by YouTube’s internal Ad Performance Report. (Presumably, the performance of those network-sold ads would be tracked by the network’s own tools.)
All of this proves to be interesting insight into the business side of YouTube, but for me, what was most interesting about this panel? It wasn’t limited to the industry-only VidCon track — it was open to all VidCon attendees, from casual fans to professional YouTubers. And while it wasn’t the largest room at the Anaheim Convention Center, it was standing-room-only.
It’s hard to imagine YouTube conducting such a panel in such a consumer-facing manner even just two years ago. It might make one wonder if recent criticisms of YouTube’s business model by outspoken folks such as Hank Green and Jason Calacanis had an impact.
Honestly, though, I think the more likely theory is this: the more that YouTubers understand how their profits on YouTube work, the more the business grows. The fact that kids who were just learning to use cameras three years ago now have the opportunity to learn the difference between CPM and RPM — that’s evolution, right there.