AdSense revenues can ignite spikes of exhilarating joy as well as phenomenal dips of depression, depending on whether AdSense-based revenues are moving rapidly up or have suddenly dropped without any apparent logic to it.

The reasons for such advertising revenue fluctuations can vary a great deal, and learning which variables and factors can affect them the most, can be of extreme value to any web publisher seeking greater sustainability and higher revenues.

Photo credit: Iurii Lupol

To gain a better understanding of what variables can affect revenue, the first thing I would personally suggest to do is to learn how to read revenue tracking data coming from your site as well as mastering the online advertising terminology used today.

CPC, CPM, CTR are some of the popular acronyms you should be very familiar with, together with the simple formulas needed to arrive at them.

With these, and some of the methods suggested here, you can start taking more proactive action to treat revenue fluctuations based on the symptoms you've discovered.

Christian Ashlock, at the Official Google AdSense blog has recently posted a two-part report on this very topic which I found extremely helpful and comprehensive, especially for those who are new and unfamiliar with the online advertising business and specifically with the factors that can affect your AdSense revenues.

I have asked permission to republish this report in full, as originally published by Google, because I think it contains valuable information that should be read exactly as it was written by the AdSense team guys.

So without further hesitation, here is the full Google report on how to analyze and manage AdSense revenue fluctuations:

Diagnosing and Treating Revenue Fluctuations

by Christian Ashlock / Official Google AdSense Team

You love your website and you want it to thrive. You create content, manage your community, and keep an eye on your AdSense performance.

If AdSense revenue is down, you're understandably concerned.

If AdSense revenue is up, you're happy, but you want to know why.

Revenue fluctuations are obvious enough when they occur, but the root cause isn't equally clear. It can be challenging for both new and experienced publishers alike to analyze their AdSense data and respond effectively to changes.

The goal of this article is to help you understand the AdSense revenue model so you can diagnose and treat revenue fluctuations like an experienced MD.

Study Up

a) CPM, CPC, Page Impressions
The first step is knowing how the figures reported in your account (such as eCPM, CTR, and page impressions) interact to describe your total revenue.

b) eCPM
Think of each number as a variable in the revenue formula for your site. At the highest level, you can calculate revenue by multiplying your page impressions by the effective cost-per-thousand impressions (eCPM) and dividing by 1000.

Revenue = Page Impressions * eCPM / 1000

eCPM = Revenue / Page Impressions * 1000

The eCPM metric provides an estimate of how much revenue you can expect to earn for every 1000 page impressions.

For example, if you serve 10,000 page impressions and earn $40, your eCPM is $4. If page impressions increase to 30,000, you can predict that you'll earn $120 given the $4 eCPM. Most AdSense ads pay on a cost-per-click (CPC) basis, so eCPM is really a measure of your average ad performance.

c) Measure Performance
Breaking eCPM into the click-through-rate (CTR) and the average cost that advertisers pay per click (CPC) gives you a more accurate measure of performance.

Revenue = Page Impressions * CTR * average CPC

d) How to Predict Your Revenue
Once you know your average CTR and your average CPC, you can predict how much revenue you'll earn for a given amount of page views.

You can also analyze your revenue by looking at placement-targeted ads versus contextually-targeted ads.

Total Revenue = Revenue (contextual) + Revenue (placement-targeted)

e) CPC or CPM?
While contextually targeted ads always pay per click, advertisers can pay for placement-targeted ads by impression (CPM) or by click (CPC).

To account for both of these bid types, you should look at the average eCPM for placement-targeted ads. More simply, you can just add placement-targeted revenue to your contextually targeted revenue.

Revenue = (Page Impressions (contextual) * CTR * average CPC) + (Page Impressions (placement-targeted) * eCPM (placement targeted) / 1000)

Revenue = (Page Impressions (contextual) * CTR * average CPC ) + Revenue (placement-targeted)

f) Competition
Even though we're looking at contextual and placement-targeted revenue separately, don't forget that these two types of ads compete against each other in the auction. We'll always show the best performing ad, regardless of targeting type, so more competition creates higher winning bids.

Identify the Symptoms

Now you're ready to diagnose any revenue fluctuation. Just like the revenue formulas above, let's start simple and gradually get more complex.

The first question to ask is: Did either your page impressions or your eCPM change? (You can compare trends in both page impressions and eCPM using the Advanced Reports in your account.)

a) If your AdSense page impressions have declined, you should determine if traffic to your entire site is declining as well. A web analytics tool such as Google Analytics can provide you with this information. In addition, you should check your pages for unpaid public service ads (PSAs).

b) If your eCPM is down, you'll need to dig one level deeper and find out if your contextual or placement targeted ad performance has dropped. (You can also find this data in the Advanced Reports tab using the options shown below.)

Let's consider your contextual ads first.

The two key metrics to investigate are CTR and average CPC. CTR is given in your reports, but you'll need to calculate your average CPC using your favorite spreadsheet. (My favorite goes without saying). Please keep in mind that this is still an average CPC for your account and doesn't necessarily correspond with the price paid by any specific advertiser. Once you've narrowed the change to CTR or average CPC you're ready to start treatment.

For placement-targeted ads, you should analyze how much total placement-targeted revenue you are receiving and the average eCPM.

Changes in either of these metrics usually indicate that advertisers are beginning or ending campaigns targeted to your site.

Again, placement-targeted campaigns are more likely to be short-term than contextual campaigns.

Choose the Right Treatment

Photo credit: Iurii Lupol

You're finished investigating the cause of the revenue fluctuations, and it's time to take action. Find the symptom you identified below for suggested treatments.

• Page Impression Changes

  • Check for AdSense technical issues or public service ads (PSAs). If ads aren't being served on your site, we aren't registering page
    impressions.
  • Don't miss out on search traffic, use Webmaster Tools to make sure that Google is properly crawling and indexing your site.
  • Consider the promotions you have running for your site. Did an ad campaign end, causing a drop in traffic? Has a popular site linked to you, causing a spike in page impressions?





• CTR Changes

  • A drop in CTR can be caused by a user interface (UI) that's not optimized or by poor targeting. Readers won't click on ads they don't see or find irrelevant. To improve the relevance of your ads, you might want to try section targeting.
  • Check for crawl problems. If our system can't crawl your page, we can't serve relevant ads.
  • If you've implemented or changed your ad server, check that there are no new targeting problems.
  • Have you changed the look and feel of your site? Follow our optimization best practices whenever launching a site redesign. An easy way to start is to match the ad colors to the design of your site and choose a top performing unit such as the 300x250 medium rectangle.
  • If your CTR has been in a slow decline, your readers may be experiencing ad blindness. Try testing new ad formats, placements, or colors.





• CPC Changes

  • CPCs are determined by advertiser bids and are not directly under publisher control. Most large CPC changes are seasonal. For example, certain ad verticals attract more spending during the holiday or back-to-school seasons.
  • CPCs can also fluctuate as advertisers begin and end their
    advertising campaigns.
  • You can always improve your CPCs by choosing ad formats that support all ad types: text, image, video, flash, and gadget ads. More competition means higher advertiser bids.

  
  
  

• Placement Targeting Revenue Changes

  • If overall targeted revenue is changing, determine what your average placement-targeted revenue has been for the past few months. Your goal is to determine if the changes in your recent earnings are part of a trend or a short-term earnings fluctuation.
  • Publishers can experience spikes in placement-targeted revenue when
    advertisers run limited-time campaigns. For example, an advertiser may run a large placement-targeted campaign only during the opening week of a summer blockbuster movie.
  • If you want to increase placement targeting over the long term, set up ad placements. This will make it easier for advertisers to find and target your site.

Finally, two more things...

a) Where Are the Changes Happening?

Many AdSense publishers run multiple websites or have site sections that perform very differently.

For example, the article section of a cell phone review site may have a higher eCPM than the forums.

Whenever you notice revenue changes at the account level, always determine which of your sites or sections is causing the change.

You can set up URL and custom channels to track all the important parts of your account separately.

Knowing exactly what is changing and where will allow you to make the smartest decisions about what to do.

b) Taking Seasonal Fluctuation into Account

Take a broader view and look for historical fluctuations in the metrics described above. Over the same time period last month or last year, you may find similar volatility in your eCPM, revenue, or page impressions.

For example, you can compare the Mother's Day performance of a flowers and gifts site for 2006 and 2007.

Is your current account performance consistent with the previous time range? If so, the revenue change you're investigating might reflect a recurring pattern.

Originally written by Christian Ashlock for AdSense Optimization Team and first published on March 5th 2008 and 7th 2008 as Diagnosing and treating revenue fluctuations (Part I) and Diagnosing and treating revenue fluctuations (Part II)

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