Tips on Buying Flat-Rate Text Ads
Nov 18th, 2007 by msdanielle
Do you ever wonder if purchasing flat-rate text advertising on high-traffic sites works? Well the answer is Yes, they can perform extremely well, as long as you do the correct research and know your numbers. Advertisers can gain valuable, targeted, high-volume traffic if the monthly price is right. Here are some tips on how I go about purchasing flat-rate text ads. Hope you all enjoy algebra!
Research
With some prior testing, you should know your estimated conversion numbers. In this example, I’ll be using the following fictitious statistics for an email marketing campaign:
- Max Cost Per Action (Subscriber Value): $6.00
- Target Gross Margin: Minimum 50%
- Demographic: Males 18 - 40 with time and money to spare
Formulas
Make sure you know your formulas. For reference, I’ll be using the following basic formulas:
- Cost Per Click (CPC) = Total Cost / Total Clicks
- Conversion Rate (CR) = Total Conversions / Total Clicks
- Cost Per Action (CPA) = CPC / Conversion Rate
- Gross Margin (GM) = (Subscriber Value - CPA) / Subscriber Value
Doing the Math
Flat-rate ad buys is based on math, but you should also consider the ad’s placement. Above the fold is always desirable. Let’s do some calculations based on the following fictitious site stats to see if we have a chance of getting a positive return on a one-week ad buy.
Tip: Buying an ad at a one-week interval first allows you to test without committing to an entire month’s purchase. Some ad networks such as AdBrite allow some one week, and even one day, testing.
- Estimated publisher impressions per month: 550,000
- Alexa ranking: 21,000 (can indicate stable traffic numbers; take with a grain of salt)
- Demographic: Males 18 - 35 with time and money to spare
- Monthly text ad buy: $600
- Placement: Right column, above the fold
- Competing ads: Total of five
Now let’s do some calculations to see if this can be a profitable campaign.
Estimated click-through-rate (CTR) is 0.50%. There is no real way to know this until your ad is live on the site, so let’s estimate it for now. Therefore, clicks equal 2,750 for the month, or approximately 690 for one week. We will also conservatively estimate conversion rate to be 10%.
- Clicks: (550,000 x .005) / 4 = 687.5
- Cost Per Click: ($600/4) / 687.5 = $0.22
- Conversion Rate: 10%
- Cost Per Action: $0.22 / 0.10 = $2.20
- Gross Margin: ($6.00 - $2.20) / $6.00 = 63.33%
Now let’s see if this will work with an estimated conversion rate of only 5%.
- Clicks: (550,000 x .005) / 4 = 687.5
- Cost Per Click: ($600/4) / 687.5 = $0.22
- Conversion Rate: 5%
- Cost Per Action: $0.22 / 0.05 = $4.40
- Gross Margin: ($6.00 - $4.40) / $6.00 = 26.67%
So it appears the difference between a conversion rate of 5% and 10% can determine whether or not we make our targeted gross margin of 50%. Let’s find out what our minimum conversion rate is to meet this goal. How exciting is this?!
Calculating Minimum Conversion Rate
If the conversion rate falls below a certain point for this particular campaign during our one-week test, it may not be wise to purchase an entire month’s ad space. Let’s find out what our minimum conversion rate is. We do so by assuming the gross margin is 50% and finding our threshold CPA. Time to plug and chug, guys!
If target GM = 0.50, then:
- 0.50 = ($6 - x) / $6
- $6 x 0.50 = $6 - x
- $3 = $6 - x
- -$3 = -x
- x = $3
So in order to reach a 50% gross margin, our maximum CPA is $3.00. Now we can calculate the minimum conversion rate. If CPA = CPC / CR, then CR = CPC / CPA.
If CPA = $3, then:
- $0.22 / $3 = 7.33%
The minimum conversion rate is 7.33%. Let’s double check our algebra!
- Clicks: (550,000 x .005) / 4 = 687.5
- Cost Per Click: ($600/4) / 687.5 = $0.22
- Conversion Rate: 7.33%
- Cost Per Action: $0.22 / 0.0733 = $3.00
- Gross Margin: ($6.00 - $3.00) / $6.00 = 50%
This means if you get a conversion rate near or below 7%, you probably shouldn’t continue to buy. Keep in mind that for this example, I’ve estimated CTR. A lower CTR will require a higher minimum CR. If your ads, clicks and landing page are performing well and you’re converting at 15%, then you’re money!
Was that the bell? Class is dismissed.
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[…] was using paid links and how to avoid them” Ms. Danielle wrote an all encompassing post on “buying flat rate ad’s” check it out here this is a bookmark […]
good post thanx… am currently working my way thru your ppc arcives
awesome, thanks! i hope you find them helpful as well
Yeah I did, plain English and some really useful links… have not finished my site yet but hope to start with PPC in a few weeks… initially with a very small budget
When I first read your stuff on PPC I was not convinced of its value vs SEO… but now I know you really do need both.
If you are going to spend months optimizing (SEO) for keywords it would be useful to know in advance how well they convert!!!
feel free to let me or gary know if you want to push ppc to a landing page to convert an email marketing campaign… just in case u were thinking that
No I wasn’t, but its something I will bear in mind for the future… have you done that on Pink Deals, I see there is a subscription box… would be interested to know how you get on.
what’s the minimum conversion rate? what’s the max buy? what CTR do you need? . . .. . .ahhh . . you’ve come such a long way!
First time visitor and I get bombarded with conversion formulas
Nice post, I’ll be sure to pop back this way on a regular basis.
thanks for your feedback. feel free to check out my other ppc articles for some not-so-mathy ppc tips
that is quite a lot of math. smart girl!
very nice research!
Looking Good!
Darin
Nice article - who says girls shy away from dealing with numbers and statistics?? Now, if only I could find some sites with flat-rate text ads where I could see conversion rates that good (outside of the holiday season, anyway)…
yea, product sites will have completely different conversion numbers. maybe you could do an email marketing landing page campaign and drive users back to your site with exclusive coupon code links in the email?
“Get your exclusive 10% Off coupon today by signing up for our newsletter”…blah blah blah… im going to stop now or else this will turn into another post…
[…] alternative advertising techniques. The lovely Danielle has put together a guide that provides tips on buying flat-rate text ads. Speaking from a publisher’s point of view, text link ads have been among the most lucrative […]
using alexa as one of the parameter would be not so wise i guess.
since we all know how accurate alexa is.
see that cashquests.com traffic is only about 500/day and they have 20k rank?
but it’s a nice math anyway,
i wish i could ask you a help to do this count for my site
“take with a grain of salt”
i hope you find the other information useful. it helped us make a lot of money
[…] 2. Cheap Traffic […]
Thanks so much! Love your idea on getting cheap traffic. You really good deep on the details.
Great stuff Danielle.
I can’t wait to set up some of your logic in an Excel spreadsheet.
Do you ever use Excel “Goal Seek” to determine breakeven on advertising or to set targets?
I’m trying to educate one of my clients to avoid flat rate advertising that doesn’t have proveable profits. I’m at one end of the spectrum and the banner advertisers are at the other end of the spectrum telling my client that banners provide “brand lift” and that PPC logic and conversion rates don’t apply to banner advertising.
Your thoughts?
Thanks for your blog.
Richard Kraneis
Chicago, IL USA
Danielle,
I just took this wonderful article of yours with its embedded formulas and made spreadsheets out of it. I couldn’t have done it without you.
I hope you’ll drop by and visit my blog today at http://richardkraneis.typepad.com/richard_kraneis_blog/
Thanks for the online marketing education Danielle.
hey richard, glad you got some good use out of this post. i’ve never used “goal seek” in excel but i just googled it and watched a tutorial. that’s pretty cool, it’s sort of like setting up rules in overture from what i gather. thanks, i’ll be using that in the future from now on.
but i plan on writing up a post on it. it seems to be a direction that a lot of brand advertisers are now going toward in order to justify ad spend by producing a positive ROI on display ads. i’ll try to crank that out this week. thanks for your feedback an input!
as for brand vs. response advertising, i sat in on a workshop at the OMMA global conference that touched on what they called branded response advertising. i left my conf notes at my friend jeni’s house
was reading up on flat rate text ads. you were the first link. impressive
Nice calculations…good experimental…good idea..i’ll try it too..thanks