There are several types of media to consider when mapping out an Internet marketing campaign. Some of the more popular candidates include pay-per-click (PPC) listings, PPC banners, banners based upon impressions, e-mail, search engine positioning, and link exchanges. Choosing between the different alternatives can be a daunting task. Regardless of which media you are considering, it pays to sit down with a calculator and do the math – and you may be surprised!
THE FACTORS
Trying to determine the cost per acquisition (new order or customer) prior to running a campaign is like shooting in the dark — there are just too many factors, such as the cost-per-click, total clicks, and clicks-per-acquisition. Additional variables that can further muddy the water include the Web site design, customer service, product offerings and sales methodology. I strongly recommend running a test campaign for one month to get a handle on these numbers. After this one-month test you should have all of the information necessary to analyze your results. But keep in mind: this is a limited test and you should be able to significantly improve your results with more experience.
Most of the advertising placement companies will provide you with sufficient statistics to analyze your campaigns. It’s also essential that you implement statistical software so you can independently analyze your results. For the first month, you can start with the numbers the advertisers provide you.
Next, you need to translate each of the media to a common base. I prefer the cost-per-click (CPC) measurement for each media. The next big question: how many clicks does it take to get an acquisition (a new order or customer)? Finally, you need to keep track of how many acquisitions you received from your Internet marketing campaign. This can be difficult, but it’s essential in analyzing your results. You can do this by using unique phone numbers, extensions or Web sites.
You should now know the total number of new acquisitions and clicks received from all of your media for the testing period. By dividing the total number of clicks by the number of new acquisitions, you’ll know the number of clicks it took to get an order. For example, assume that you received 20,000 clicks and closed 400 new orders, taking 50 clicks per order. To determine the CPC, you simply take the total cost for all media, divided by the total number of clicks. As an example, assume you paid $5,000 for Internet advertising and received 10,000 clicks; your CPC would be $0.50.
Armed with these three factors — cost-per-click, clicks-per-acquisition and number of acquisitions, you are now ready to do the math.
DOING THE MATH
Putting it all together to determine the cost-per-acquisition is now very simple. The formula is:
Cost-Per-Acquisition = Cost per click x Number of clicks per acquisition
This methodology assumes that a click is a click; it doesn’t matter if the click came from a banner or PPC or Yahoo or Search.com. It assumes that all clicks are equal. The reasoning behind this is that for branding purposes, your listings, banners and other ads all should present the same message – in a similar manner. It also assumes that it doesn’t matter where the ad is displayed, a click is a click. There can be some argument regarding these assumptions but I’ve found them to be very close in performance.
You should now apply the above formula to each of the media you are using. By assuming that the number of clicks-per-acquisition is the same for all media, you’ll have a good idea of what each media is costing — per order.
A MOVING TARGET
About a year ago I was mapping out a campaign and considered using Yahoo banners which were running around $70 for every 1,000 impressions, or a CPM of $70. So each time a banner was displayed, the cost-per-impression was $0.07 ($70 / 1,000). At first, this doesn’t sound too bad – until you do the math. A good click-through rate on a banner campaign is 1%, so let’s use that. In this case, ifyou were to run 1,000 banner impressions, you would get 10 clicks (1% of 1,000), for a cost-per-click of $7.00 ($70 / 10 clicks). If it took 100 clicks to get an order, your cost-per-order would be $700 ($7.00 x 100 clicks-per-order). This is extremely high for most types of offerings. After doing the math we decided it was far too expensive.
Only a year later, it’s funny how things change. I recently received a call from a sales rep with Yahoo, trying to sell me banners. I said, “at $70 CPM you’re way out of line, it’s just not justified.” The rep coughed, hesitated, and then said, “We’ve reduced the price of banners to $3 CPM.” I just about fell over, unable to believe how much the price had fallen! It didn’t take me long to do the math and see what a difference a year can make. Using the same assumptions as above, the cost-per-impression was now $0.0033 ($3 / 1,000), the cost-per-click is $0.33 ($3 / 10 clicks) and finally the cost-per-order is $33 ($0.33 x 100 clicks-per-order).
What a difference a year can make — the Internet is full of surprises, so don’t assume anything – just do the math!
Neal Lebar has been building and managing Internet campaigns since 1996. He has proven that Internet marketing absolutely works and can generate returns far greater than traditional media. Visit – www.innovate-inc.com, www.extenderware.com or nlebar@innovate-inc.com.
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