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:
- Increase your
profit per visitor, OR
- 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.
