Forum Moderators: skibum
I searched the internet high and low for a forum that discussed advertising, CPM, CPC, etc. and I’m so glad I found this place!
I've done quite a bit of research on the internet concerning banner advertising and can see it from both a publisher & advertiser point of view. Here’s what I’ve found in a nutshell. If I’ve made mistakes, or need any kind of corrections, please let me know as I’m still learning!
CPM (cost per thousand impressions) is often what publishers want to get since it guarantees them the income regardless of how good / bad an advertisers banner / product is.
CPC (cost per click) is often what advertisers want because they only pay for the people who actually click on the ad, not that just see the ad.
CPA (cost per action) is becoming more and more the trend and is even more what advertisers want because they see an immediate ROI. The publisher only gets paid if someone sees an ad, clicks on it AND makes a purchase... sound like an affiliate program?
I am an MS Excel spreadsheet freak and have done a TON of analyses on CPM, CTR (click through rate), ROI (return on investment), etc.etc.etc. I’ve tried to find industry averages for CTR and conversion rates, but they are all over the place.
Here are some of my studies. Please look at the numbers and tell me what you think:
Let’s say I purchase 100,000 impressions of an ad at a CPM of $2.00 for a total of $200. Let's say I get a click-through rate of 1% and of that I get a conversion rate (people who buy my product / service) of 5%. That would be 1,000 clicks, and 50 purchases. This would mean that the CPA (cost per action) or every person that paid for my product / service cost me $4.00 (200 / 50).
Now, there are lots of other factors involved... will they buy again? Will they tell their friends? etc.etc. which are hard to put a benchmark on.
Another example from my spreadsheets contains what I believe is pretty consistent with what I’ve read about and see in the REAL WORLD:
CPM: $.50
# Impressions: 200,000
Cost: $100.00
CTR: 0.2%
Conversion Rate: 1%
Clicks: 400
Actions: 4
CPA = $25.00
That means that every sale costs me $25!
When the site I started in college first started getting going my associate had dreams of grandeur. He envisioned $40 CPMs and needed to show him that advertisers couldn’t justify this. Using similar numbers to the ones above (a bit higher for argument’s sake), but with $20.00 CPM:
CPM: $20.00
# Impressions: 200,000
Cost: $100.00
CTR: 1%
Conversion Rate: 1%
Clicks: 2000
Actions: 20
CPA = $200.00!
So, would an advertiser pay $200.00 per customer acquisition? I guess they might if their profit margin was super high… but in those high ticket items aren’t the CTR and conversion rates even lower?
So, here are my questions:
1)I know CPM and CTR are all over the place. I’ve seen people post here that they are still getting $5 - $10 CPM which I’m not sure I believe. I also see people post of 5% click-throu-rates, but I can’t believe this either. I read an article on how rate cards are often 30% - 80% inflated from what they are / should be. So, where are the numbers really? Doesn’t any company post general stats per industry / market? I keep finding this page when I do a search, but it’s more than two years old! [adres.internet.com...]
2)My site is targeted to college students at local colleges. I can target my ads to students at a specific school and am thinking about getting local advertisers. I run the numbers using best case scenarios ( 5% CTR, 5% conversion) and worst case (.05% CTR and 1% conversion). What’s the best way to determine if it would be worth their money to advertise at a certain CPM.
3)I’d love to hear general comments about my ramblings above. I think this is more of a hobby for me than a business because I enjoy discussing it and analyzing it so much!
If you are shy, send me an email directly.
[edited by: Drastic at 6:46 pm (utc) on Nov. 18, 2002]
[edit reason] contact info in profile [/edit]
Nice overview there.
You're right, CPM and CTR are all over the place. And yes, some people do get $5+ (some get +++) CPM. However, it may not be the traditional 468x60 banners you may be thinking.
The biggest reasons for the fluctuation are topic and targeting. CPM on a celebrity pics site is not going to earn anywhere near the CPM of a data recovery site. CTR is also going to vary wildly according to how targeted the ads are. A gambling banner on a celeb pic site is not going to get the same CTR as an ad for a RAID card (mirror array) on a data recovery site.
The problem with many rate cards, is they were published when CPMs were much better than they are now.
>What’s the best way to determine if it would be
>worth their money to advertise at a certain CPM.
Your advertisers (if you approach them) are probably not going to understand the numbers and way calculating like we do. It would probably confuse them, and possibly alienate them. I would approach them in a more general fashion, just for them generating more traffic/sales from your link. Then, if they want specifics you can go into them.
I would also consider selling ads on a monthly basis. Some sites/people understand and trust that model more.
