As Ms. Danielle has announced on her blog, I have recently accepted a job in West Los Angeles to head up internet marketing. I really don’t want to get in to what I’ll be doing there just yet as I haven’t started, so I honestly don’t want to assume too much, especially since I found out the higher ups read my blog prior to my interviewing with them. I wanted to thank everyone for sending in their congratulations. I don’t really start my new job until September, so until then, I’m going to concentrate on tying up some loose ends with my projects sites and consulting work.
One of those loose ends is helping a buddy of mine sell some ad space for his website. The website will remain nameless for right now, but I can tell you that it receives well over 350k impressions per month and has a very strong niche following in the financial sector due to my friend’s expertise in search engine optimization. Anyways, I’ve been contacting some potential advertisers and sent them over a media kit that I made to give them a good idea of what we can do for their company. I gave them basic information such as impressions per month, uniques per month, traffic demographics, an article explaing SEO vs. PPC ad campaigns and some screen shots of where their advertisements would go.
The inspiration for today’s post comes from a conversation I had with one media director today who has me completely baffled with her ignorance and stubborness. Oh wait, let me correct myself . . she’s an “assistant” media director and I’m still, at this moment, baffled at her ignorance and stubborness. Here’s an synopsis of how the correspondence went:
Monday Email - “Dear Media Director . . . My name is Gary Lee and I wanted to see if you were interested in advertising on my site . . . I’ve included a media kit for your review . . . . . please feel free to contact me at any time! . . . Best, Gary Lee”
Wednesday Email - “Dear Mr. Lee . . . . Thank you for contacting me . . . I’ve gone through your Media Kit and your CPM seems to be a little high . . . . . the highest I can go is a $5-8 CPM!”
Wednesay Email - “Dear Media Director . . . . have you considered that this is highly targeted traffic that is actively looking for products your company offers?”
Thurs Email - “Dear Mr. Lee . . . . . the highest I can go is $5″
First thoughts in my head are “Dayam!” . . . next thoughts I can’t write as they are full of profanity and if children read this site, their parents would come after me with pitchforks and SUVs.
So, I finally calmed down and was trying to figure out why $5 was the magic number in her head. Was it because she’s so used to advertising on the Adbrite with Network Ads or any of those other 3rd tier ad networks? (For those of you who have never used Adbrite, it’s great for a certain demographic, but if you’re going to do ad buys for financial products, let’s just say Adbrite traffic won’t be able to see through all their smoke to click on that kind of ad). Or maybe, she has a boss that gave her a $5 CPM ceiling that she can’t get past. Or MAYBE, she doesn’t know the finer points of ad buying and needs some help?
I’ll go with no. 3 and say she needs some help. Since I have this wonderful blog of information, I thought I’d add a little bit to it and see if I can show her the metrics she should be looking at when considering an ad buy for her client. In this example, I’m going to sell her some of my inventory for a 160×600 Skyscraper ad on the left side of the site. The only given in this whole example is that she will be getting 225,000 impressions from my site.
The guessing game starts when she’s 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 her 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, this won’t be a factor. The Media Director can control the CTR by the quality of ad she decides to run on the site. An neon green ad with pink flashing words that say “Low Rates! Sign up Here” might get a decent CTR, but she 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 she might be considering is Ad blindness, which is when returning visitors become blind to the left 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 new account signups she gets 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 their site, it’s their responsibility. But one important thing to know when negotiating is that she should know what the conversion rate is of the page she’s sending traffic to. If she doesn’t, request to talk to someone else.
Customer Sign Up Value - This is the big one. This is the number I would like to know and the number that she 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 her site . . . let’s say we get 100 new account signups for her site. The total revenue over the course of a year those 100 signups generate is $5000. That means on average, every time a person signs up for a new account on her client site, it’s worth $50 to her client.
So here we go . . . . remember how she was saying that $5 CPM is the most she can pay? Let’s use that and see what happens at the end of one month when all 225,000 impressions are delivered for her client. 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)!
| Impressions | 225000 | 225000 | 225000 | 225000 | 225000 |
| CTR | 5% | 4% | 3% | 2% | 1% |
| Clicks | 11250 | 9000 | 6750 | 4500 | 2250 |
| CR | 15% | 15% | 15% | 15% | 15% |
| Account Signups | 1688 | 1350 | 1013 | 675 | 338 |
As you can see, I am showing her a range of CTRs that she is projecting my site to get. Most likely, she’s thinking worst case scneario which would be 1%. To tell you the truth, I think she’s going to get closer to 5%, 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 not to reveal too much about my friend’s site.
| CPM Rate | Total Campaign Cost for 225,000 Impressions |
| $5.00 | $1125.00 |
| $20.00 | $4500.00 |
| $30.00 | $6750.00 |
| $45.00 | $10125.00 |
| $65.00 | $14625.00 |
| $85.00 | $19125.00 |
| $100.00 | $22500.00 |
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 she is holding on to dear life for? At a 1% Click Through Rate, she would still get 338 Account Signups. She is 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 her costs for the ad.
Are you beginning to see where I’m going with this? Does her client realistically only make $3.32 per Account Signup? Remember the last time you wrote a bad check . . . . didn’t the bank charge you $25 for overdraft protection? Out of the 338 signups through this campaign, her client would only need 45 bad checks to be written over the lifetime of 338 accounts to cover their costs! And that’s just writing bad checks . . . how about ATM fees, check writing fees, ordering new checks, deposit in the bank fee, direct deposit fees? I definitely think they make more that $3.32 off each account.
What do you think each account signup is worth? $20? $50? $100? Remember, this is over the lifetime of this new account! Here’s a table I made up to show you how much our favorite Media Director’s client can earn based on different customer sign up values:
| Customer Sign Up Value | @ 5% CTR | @ 4% CTR | @ 3% CTR | @ 2% CTR | @ 1% CTR |
| $5 | $8437.50 | $6750.00 | $5062.50 | $3375.00 | $1687.50 |
| $25 | $42187.50 | $33750.00 | $25312.50 | $16875.00 | $8437.50 |
| $50 | $84375.00 | $67500 | $50625.00 | $56250.00 | $16875.00 |
| $100 | $168750.00 | $135000.00 | $101250.00 | $67500.00 | $33750.00 |
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. The client ends up making $1687.50 which is a 50% gross margin. Ad companies usually will charge 20% of what they spend, so the real cost to the client is $1350, which still comes out to a very healthy 25% gross margin. Now, this is also based on the fact that I was naive enough to believe that the bank only makes $5 an account signup. You can see for yourself and guesstimate with yourself how much each account is worth.
So, what do I do now? Do I email back the media director and show her this post? Do I call my bank contacts and ask them what their average customer value is?
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 clients. Numbers don’t lie and can lead you towards a successful internet marketing path!
Have any questions or comments? Go for it . . I’m really curious to hear what you guys have to say about this post, since it’s probably the longest post I’ve written in quite some time!
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first comment!!! woohoo!
great post! i will definately put it to use when considering adverting!
Great post Gary, it’s always hard to see something from both sides. Seeing all those numbers… makes me want to do some statistical analysis… god I’m a nerd.
Keep in mind that she may have other places where she can pay $5 CPM and have conversion rates that are perfectly acceptable to her. I’d start out by assuming that she is behaving rationally–you will be in a better place to negotiate. If she is behaving rationally, then your perception of the value of your traffic is much higher than hers. If you can change her perception, you can convert her into a customer. For example, offer her a month or week for free (or at $5 CPM) in exchange for sharing the conversion rates. That gives her a chance to see the value and even if you don’t keep her as a client at the higher rate you can use the stats to help acquire other clients. (Assuming they are good.)
this is pretty funny actually. i’ve looked into purchasing advertising on sites like LinkedIn, and the minimum CPM for them was $12 (last time i checked). i mean, come on, i saw ING Direct advertising on there. that’s basis to at least charge $20 since linkedin is way less targeted than the financial site — and their banner is in the footer. you’re charging for top leaderboard…
my guess as to their max CPA: $200. we know the numbers for some other big money industries and my instinct tells me banking ain’t that far off…gangstas… they must think you’re stupid…when in the end, they’re not gonna get the advertising.
I love this post Gary….very insightful into the process of working on an ad deal. It sounds like this media director thinks they are dealing with a finance site of the stature of my personal finance site, not a high traffic popular site like it sounds your friend has.
Send her my way!
Gary some great points here although I wouldn’t email her this post.
Once you know the life time value of your customer and your conversion rates you should go and find any and all leads that create profit and buy them all ( provided your business is set up with a good cash flow model).
I printed this page for future reference. I would love to start advertising, soon..
Interesting stuff- but who focuses on CTR these days??? Websites and coversions are way ABOVE and beyond that!!
congrats on the job gary, and nice post m8!
Great read Gary,
My first instinct is that she’s lowballing you simply because YOU approached her. She thinks you need her business.
The only way it’s worth doing business with her is to throw her your excess ad space for 5 bucks with one stipulation … you can pull the plug at your discretion. As soon as your excess real estate is tapped out at the rates you want, she’s out unless she’s willing to come back at your rate.
Really helpful information. Will continue to follow to follow your successes. Good luck to you!
Very well written post! Highly detailed and informative! Keep it up Gary!
Very interesting read and an eye-opener. I guess the limit depends on how narrow you want your margins and the risk you associate with the quality of the traffic. Anyway, it’s a very informative and thought provoking post for the average joe
Very nice informative post…enjoyed seeing the thought process.
Great post! Can I hire you to sell ad space on some of my sites?