The Passing Lane: Passing the Competition Online by Marnie Perhson

Issue #19 Monday, February 8, 1999

About the Author:

Marnie Perhson
Marnie Pehrson, founder of C.E.S. Business Consultants and the
International Association of Computer Professionals, develops products that help computer professionals market and manage their businesses.

She is author of
How to Run a Successful Computer Training Business,

How to Get & Keep Customers for Your Computer-based Business

Keeping Your Sanity in a Home Business.

Marnie is an Internet strategist and content developer for community-based Web sites. Her plans and strategies have garnered clients an average of $100,000 each in seed capital. She also offers ghost writing services and content delivery for your Web site or e-zine.

Marnie lives on a Georgia farm with her husband and their six children .

C.E.S. Business Consultants
Ringgold, Georgia
TEL: 706-866-2295


Should You Pay for On-line Ads?

There are so many free ways to promote your site on-line that one wonders when or if it would be wise to actually pay for advertising. However, at some point, you may get the urge to try some paid advertising for your web site and in order to make a logical decision about where to advertise and how much to spend, youŽll need to gather and analyze some important numbers. So put your thinking cap on, we're going to do some math...those dreaded word problems you hated in school.

First, gather the following numbers:

  • In an average month, how many people visit your web site?
  • In an average month, how many sales are completed through your web site?
  • How much do you net on an average sale from your site?

Now calculate the following ratios:

  • How many visitors does it take to create a sale? Divide the average number of visitors by the average number of sales per month. For example, if you had 1,000 visitors per month and you made 4 sales, then you know it takes approximately 250 visitors to establish a sale.
  • How much revenue do you net per 1,000 visitors? In our example, if you make four sales when 1,000 people visit your site and each sale is worth $25 net to you, then 1,000 visitors will be worth $100.
  • To break even on your advertising, what is the maximum amount of money you can afford to pay per visitor? In our example, if 1,000 visitors are worth $100, you can afford to pay 10 cents per visitor ($100 / 1,000 visitors = $.10 per visitor).

On average, you now know you can afford to pay $.10 per "click through."

Purchasing Advertising

Advertising is most commonly sold in one of two ways -- in impressions or in click through's. An impression occurs when your banner or advertisement is shown to someone. A click-through is when someone actually clicks on your ad or banner and comes to your Web site. When you pay for click through's you are only paying for actual visitors to your Web site.

When looking at on-line advertising rate cards, you'll see rates like $20 per cpm which means $20 per 1,000 impressions. Or in other words, you'll pay $20 for 1,000 people to see your advertisement. Notice this has nothing to do with how many people really click through to your site. So if you get a common 1% response rate to your ad, only 10 people will really come to your site for every $20 you spend (1,000 impressions X 1% response rate = 10 visitors).

At a 1% response rate you'd have to purchase 100,000 impressions to get 1,000 people to visit your site (100.000 impressions X 1% response rate = 1,000 visitors). This would cost you $2,000 ($20 cpm x 100). This means you'd have to spend $2,000 just to get 1,000 people to come to your site and for you to earn $100. So, as you can see, it isn't worth spending $2,000 to only earn $100.

In my calculations, it is rarely worth paying for impressions unless you earn a considerable amount of money on each sale. In our example of $20 per cpm, with a 1% response rate, you'd need to clear at least $2,000 per 1,000 visitors in order to break even! Not many sites can even hope to do this.

This very fact is why many people purchase click-through's instead of impressions. With click-through's, you only pay when people visit. Even, then, you want to make sure you don't pay too much for a visitor. As we calculated earlier, to break even with this example, you should pay no more than 10 cents per click through.

If you are convinced that you need to purchase advertising to promote your Web site, you have one of two options:

  1. Increase your profit per visitor, OR
  2. Decrease the cost per visitor (lower your advertising costs).

If I haven't thoroughly lost you, come back next week and I'll give you ideas for doing both.

Text Copyright © 1999, Marnie Pehrson. Part of the original Sideroad.
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