Banner Economics

Business online, like business offline, always boils down to
math: the difference between cost and revenue. If your
banner campaign is costing more than it’s earning, you won’t
be in business for very long. To figure out how your
campaign is doing, you’re going to need to know your Cost
Per Mille, your Click Through Rate and your Conversion Rate.
These are your basic tools. If you don’t know them, find
out!

Let’s say your CPM is $20, your CTR is 1%, and your
Conversion Rate is 4%. (So you’re paying $20 every 1,000
times your banner is shown, it brings you 10 new users, and
you make one sale for every 25 users the ad brings). The
question you need to ask yourself is how much are you
wasting on the 24 users who don’t buy.

Cost per visitor = $20 / 10 = $2 So each visitor costs you
$2, but you need 25 visitors to make one sale, so...

Cost per sale = $2 * 25 = $50 ...if your product is worth
less than $50, you’re making a loss.

That’s pretty simple, and as you can see, there’s not a lot
of room to maneuver here. Margins are tight on banner
advertising and that applies to both the site selling the
advertising space and the webmaster buying it.

Of course, hard cash isn’t the only way to measure the
success of a banner ad, and one reason they’re still popular
is that they’re a pretty effective branding tool. After all,
advertisers spend millions on billboards without expecting
motorists to drive straight through them and make a
purchase! On the Web, those advertisers can even be
reasonably sure that the people who see their ads will be
interested in them. But branding costs money—lots of it—with
no guarantee of results. It’s usually best left to the big
boys.

The banner ads on my sites usually send users to my
affiliate partners, and the banner ads I place on other
people’s sites usually come from my affiliate programs. They
don’t cost me anything and as long I’m making the sales to
pay my affiliate partners, everybody’s happy.

If you do decide to purchase banner advertisements though,
and if you have a very specific market in mind, make sure
they are strategically placed—on sites where the traffic
will most definitely be interested in your product or
service. Find a site that suits exactly your specific
product and you’re going to be appealing directly to your
target market.

That’s it for this week. As you can see, banner ads are not
the guaranteed money making tools that they once were but
they can still be used effectively if targeted properly. Is
banner advertising for you? Only you can determine that.