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Advertising on the internet - a beginners guide.

Our clients constantly ask us how they can make a direct revenue stream by running advertising on their website.

Advertising on websites usually involves placing a link or banner at the top or side of your site. There are three different ways to charge for banner advertising on your site:

CPM - Cost per 1000 impressions. Every 1000 times a banner is shown, your advertiser pays you a set fee. CPM charges usually range from $5 to $50. Note if you are charging the up end of the scale, you would need to have a very niche / specific target audience.

CPC - Cost per click. Every time a banner is clicked by a user, your advertiser pays you a set fee, i.e. if a banner was clicked on 100 times in a month, you could charge $5 / click (which would equate to $500 in revenue).

Set Charge - You may opt to run a banner for a set time period (e.g. week, month or year) for a set fee (e.g. you may tell your advertiser you will run their banner at the top of the site for $200 / month).

So what is the right model for you? Basically, the one that works best for you and your advertiser.

Before you decide to implement a model, you really need to look at your sites stats.

If you are getting lower impressions per month, a pay per click or set charge model will work better.

However if you are a high traffic volume site, CPM is a better method (this is what the major sites such as Ninemsn, Yahoo 7 etc. will use). Usually if you have a high traffic site, you may outsource the management of your advertising to a broker or ad network provider.

These companies will then stream ads directly into your site and manage statistics and billing.

Successful banner advertising

Companies who choose to advertise will nearly always have some kind of tracking mechanism so they can calculate their ROI (return on investment). Let's look at some scenarios.

Scenario 1

Your site receives 1,000,000 impressions per month. You decide to use the CPM model, and charge $10/CPM. Let's say for simplicity you only have 1 advertiser.

This advertiser is essentially paying $10,000 per month. Let say that advertiser gets a click through rate (CTR) of 1%. So for every 1000 impressions, 10 people click on this banner ad, so each click is costing the advertiser $1. Let say for every 100 clicks, they get two sales (i.e. a 2% conversion rate - which is considered satisfactory). So each sale is costing them $50 ($1 per click x 100 clicks = $100. Divide this by the two sales = $50 per sale).

If you're selling a $250 widget - is $50 to acquire the sale sustainable?

Scenario 2

Your site is a low traffic site, however you are in a very niche market, e.g. your website provides free technical resources and a forum to plumbers on the Gold Coast. You average around 5000 impressions a month.

A major plumbing supplier decides they will pay a flat rate of $500/month to run an ad on your site. Lets say this ad offers 60 day accounts to plumbers.

Because your site is geared towards a niche market, there is a higher click thru rate (say 3%), which equates to 150 clicks (or $3/click). Again, because plumbers are interested in this offer (and this ad directly targets them), they get a higher conversion rate (let's say 4%). So they are getting 6 sales a month from this advertisement (each sale is costing them approx $83).

If a plumber is spending on average $2000/month with this supplier - is $83 acceptable to acquire this customer?

Google Ad Sense

There is an alternative to banner advertising called Google Ad Sense. Google will stream ads to your website, and share the revenue generated from each click through (Google works on the CPC method).
Setting up Ad Sense is free, and is usually very easy to implement via your web developer.

Where to from here

Before implementing advertising on your site, ask yourself a few questions:

  1. What are my site statistics like? Does my site generate enough traffic that I can use?
  2. Who is viewing my site (what kind of demographic)?
  3. What kind of model will work for me (and appeal to my advertisers)?
  4. What kind of companies would like to advertise on my site?

You should then contact your web developer, who will be able to assist you in setting up the code, or putting you in contact with a broker / advertising network provider.