I've been running Lakers Nation for a few years now and in that time, I've been approached by many people looking to advertise their products and services. Of course, the conversation always gets down to money after they realize a barter deal just isn't going to work. The question is how do you determine if it's the right time to buy an ad?
I thought I’d set up an example and see if I can show you the metrics you should be looking at when considering an ad buy. In this example, I’m going to sell some of my inventory for a 160×600 Skyscraper ad on the right side of the site. The only given in this whole example is that I will be supplying 225,000 impressions from my site.
The guessing game starts when you're trying to figure out the quality of my traffic using:
Click Through Rate - Number of Clicks on Ad out of Number of Impressions Delivered. This is something both you and I can control. If my site relied on PPC campaigns to get traffic, then I could control the quality of traffic by purchasing cheap non-relevant traffic from non-relevant keywords. Since the site’s traffic is purely from SEO & Social Media, this won’t be a factor. You can control the CTR by the quality of ad you decide to run on the site. A neon green ad with pink flashing words that say “Low Rates! Sign up Here” might get a decent CTR, but you can probably get a higher CTR by appeasing to the traffic with a well dressed professional flashing a million dollar smile with a tagline that read “Save Now with our 5.45% Savings Loans!” Another point that you might be considering is Ad blindness, which is when returning visitors become blind to the right skyscraper because it’s consistently the same ad over and over and over again. I usually suggest to advertisers that they either have 4 different versions of their skyscraper ad or at least 2 to rotate to counter this problem.
Conversion Rate - This is the number of goals achieved from this ad divided by the number of clicks she receives from the ad placement on the site. I have no control over this as once that visitor is on your site, it’s YOUR responsibility. But one important thing to know when negotiating is that you should know what the conversion rate is of the page you're sending traffic to. If you don't, then you're screwed.
Customer Sign Up Value - This is the big one. This is the number I would like to know and the number that you should know to make all this work. Basically, this number is an estimate/average amount a customer will generate for you when they sign up for your site or product. So for your site . . . let’s say we get 100 new account signups. The total revenue over the course of a year from those 100 signups is $5000. That means on average, every time a person signs up for a new account on your site, it’s worth $50 to you.
So here we go. Let’s use a $5CPM and see what happens at the end of one month when all 225,000 impressions are delivered. I’m going to assume a 15% conversion rate as that is usually an industry standard for any landing page (if you’re not getting 15%, fix it using Google Optimizer)!
As you can see, I am showing you a range of CTRs that you can get on my site. Most likely, you're thinking worst case scenario, which would be 1%. To tell you the truth, I think you're going to get closer to 3%, but I’m biased so let’s go with worst case scenario.
Next, let’s take a look at her projected costs. I’m going to give a wider range of CPM rates so you can understand the landscape.
|CPM Rate||Total Campaign Cost for 225,000 Impressions|
As you can see, the prices for ads can get up there. The only way to justify the costs is to see what you’re going to possibly earn for the client at the end of the campaign.
So, remember the $5 CPM ceiling we are using? At a 1% Click Through Rate, you would still get 338 Account Signups. You are basically saying that each customer is worth only $3.32 (Total Ad Spend = $1125 divided by Worst Case CTR Account Signups of 338) to cover your costs for the ad.
Are you beginning to see where I’m going with this? Now let's look at the Customer Sign Up Value and you can really see how some money can be made here.
|Customer Sign Up Value||@ 5% CTR||@ 4% CTR||@ 3% CTR||@ 2% CTR||@ 1% CTR|
Pretty Amazing, huh? Look at the top right hand corner where our projected $5 Sign up Value meets our worst case scenario 1% click through rate. You end up making $1687.50 which is a 50% gross margin. What are you waiting for? You have a scalable campaign right now that you should be pouring more money into.
If anything, I hope this has given you a glimpse inside what goes on in my mind when I’m negotiating ad deals for any of my sites. Numbers don’t lie and can lead you towards a successful revenue path!
Have any questions or comments? Go for it . . I’m really curious to hear what you guys have to say about this post.