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The global mobile advertising market will hit two significant milestones in 2016, according to new figures from eMarketer, surpassing $100 billion in spending and accounting for more than 50% of all digital ad expenditure for the first time.

The $101.37 billion to be spent on ads served to mobile phones and tablets worldwide next year represents a nearly 430% increase from 2013.

Based on this information, we can see that the mobile advertising market will continue to grow and releasing applications with built-in advertising will become more profitable.

But before you drop everything and run to make the application, you need to understand how the mobile advertising works, and which parameters affect on your app revenue.

In our current example we calculate revenue for app with 100k users.

So, let’s start our calculations:

Revenue = Impressions x eCPM

Impressions - the number of impressions of an ad on the advertising platform.

A 2012 Stanford Venture Lab presentation notes that 90 percent of 100,000 users install the app and then delete it after about five minutes of use.

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100,000 x 0,9 = 90,000

About 80 percent of these have an Internet connection needed to download ads.

90,000 x 0,8 = 72,000

For an ad display to count as an impression, it has to be up for 30 seconds, so that's 2 impressions per minute.

72,000 x 5 = 360,000 minutes * 2 = 720,000 impressions

eCPM - eCPM means “Effective Cost per Mille.”

Mille in Latin is defined as 1,000. In terms of mobile advertising, eCPM translates to the advertising revenue generated per 1,000 impressions.

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To calculate eCPM we use formula:

eCPM = Total Earnings / Total Impressions x 1,000

For example, lets say in one of your apps you have shown 100,000 ads and this has earned you $200 in advertising revenue. Plugging these numbers in the above formula will give an eCPM of $2.

Now, we can calculate revenue from our app:

Revenue = (720,000 / 1000) * (eCPM per 1000) = 720 * 2 = $1,440

It is the easiest way to calculate the expected revenue. But he is imprecise and provides only approximate values.

To improve the accuracy of the calculations we add “Fill Rate” parameter to our formula.

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Fill Rate - the number of times an ad was shown to users (impressions) compared to the number of times an ad was requested from a specific ad source (requests).

Fill Rate = number of ads delivered / number of ad requested

For example, if from 100,000 delivered ads 5,000 not displayed, the fill rate will be:

Fill Rate = (100,000 - 5000) / 100,000 = 0,95

Then, our expected revenue will look like this:

Revenue = (720,000 / 1000) * (eCPM per 1000) * Fill Rate Revenue = 720 * 2 * 0,95 = $1,368

Today that's all we wanted to tell you.

Feel free to ask us a questions in the comments, if you don't understand something in calculations or need more information.

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