‘Fitty’ cents equals ‘Fitty’ dollars

by Media Two on March 14, 2008

in Analytics,Search

We have all taken the call, where an online publisher calls you out of the blue, or worse, calls your client and then they call you, selling their services and the benefits of their site. If they are really good at their job, everything sounds great…quality traffic, attractive demographic profile, targeting capabilities, Web 2.0 functionality…and that it makes “too much sense to ignore”. Then comes the punchline, “depending on the budget levels, I can talk to my manager about discounting our rate card and offer a onetime CPM of $20, but don’t tell anyone else I gave you this rate.” I knew you had heard that before.

Don’t get me wrong, I am not trash-talking publishers…I started my career on the publisher side. A big part of our business, or any business for that matter, is fostering strong working relationships with your vendors. To that point, it is extremely important to test new publishers to see if you may find your next ‘Behavioral Targeted Yahoo Mail at a $1 CPM’. That said, do they really think that a CPM at that level is going to work from a direct response standpoint? (Do I even have to say the objective is direct response? The online channel is direct response by nature as results are immediate and measureable)…but I digress. Politely explain to your cold caller that in order to meet your $50 Cost Per Action, you need to be at a $.50 CPM. Maybe your Cost Per Action is higher at $100. Well then at that CPA level, we have to be in the ballpark at that CPM level, right? Ahhh….not even close. The CPM would need to be at $1 to hit a CPA of $100 (just double the $.50 CPM). $150 CPA = $1.50 CPM, $200 CPA = $2 CPM, so on and so forth. You get the idea. At this point, two things will happen. Either, your perfect opportunity will know the jig is up and end the call, or they will get defensive and start spouting @plan composition percentages of their user profile. “70%+ of our audience is 25-54”…oh yeah, so is the general online universe.

I know what you are asking yourself, how do you possibly know what the rate needs to be to reach my client’s CPA levels? You have no idea what my business is or what our current metrics are. I don’t need to know. The answers are in these two numbers – .1 and 1. You only need these two numbers to determine what you have to pay for your online inventory to meet a certain CPA level.

  • The first number is the click-through rate, the rate at which users responding to your ads after being exposed. A click-through rate of .1% is a good benchmark to shoot for judging creative and using within your projections to forecast performance. What about the use of Rich Media, you say? “We did a campaign in Qwhenever and we saw a 2% CTR, so take that!” (Let’s be clear, flash is not Rich Media. It’s far too common to be considered Rich Media anymore. We are talking about the 3rd party technologies of the world – Pointroll, Eyeblasters, DART Motif).Ok, I’ll bite. How much did your CPM and serving cost go up by running this type of technology? Also, what was the effect on the conversion rate? You have to be careful with Rich Media and focusing too much on increasing front-end response. Majority of the time, your campaign will not achieve a 2% CTR to make up for the added cost associated with the technology, and historically, they have an adverse effect on the conversion rate. In the end, an advertiser pays these additional fees with no return on their investment, and this aesthetically pleasing ad is used only once and forgotten. So, I think it is fair to use the aforementioned .1% in our calculation, don’t you? Sure, sometimes an ad may experience a higher rate, but majority of the time, most flash ads are not cutting through the clutter and not even reaching a .1% CTR.
  • The second number is the conversion rate, the rate at which a user clicks on one of your ads and completes the conversion process, whatever that may be. Let me explain why I am using 1%. For far too long lately, I have seen extremely low conversions rates, and it is not just the Health industry. I have seen 1% or less conversion rates for some very well-known clients in the Financial Services and Telco industries as well, meaning this is a trend across the board, not an isolated incidence. I get asked a lot to explain the reasons why users in the online medium are just not converting and dropping off at such an alarming rate. This conversation always leads to “how are you, our interactive agency, going to fix this problem?”. We, as online marketers, can lead them to water, but we can’t make them drink…at least not by ourselves. Both are blog entries for another time, because there isn’t a simple answer…again, I digress. The numbers do not lie, and historically, the online click-to-conversion rate is on average around 1%. I stand behind my number. Yes Michael, I feel a case study coming…

As you can see, .1 and 1 are the magic numbers. Obviously, there are more calculations that go into it and you may even have historical data that is different from these. But if you don’t, these two will work for you. Are you coming to the realization that we, at Media Two, have known all along? I know, pretty daunting isn’t it…but if you can’t beat’em, join’em. So, have no fear, there are online marketing tactics and strategies that can make those numbers work for any business to enjoy success in achieving your or your client’s acquisition goals. So next time you receive a call from a prospective online partner, remember this simple calculation, and save yourself the trouble of having to explain to your client why they are in market with a $1,000 CPA. Then, take the conversation to that place where content publishers want to avoid like the plague – PPP (Pay Per Performance). Say that three times fast…

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