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RE: CPM vs. CPC vs. CPA

From: Daniel Limbach <dan_at_attritiongame.com>
Date: Sun 18 Nov 2001 22:14:52 -0500

Amanda wrote:
>I have found that my
>CPM deals DID work, quite successfully (over 706%
>ROI to be exact) and NONE of the CPA deals delivered
>anything worth tracking.

I may be mistaken, but isn't CPM vs. CPC vs. CPA just
different flavors of the same thing?

Here's an example:

An advertiser wants to sell 100 copies of his
software at $20 a pop. His 75% margin gives him a
profit of $15 per unit before ad expenses. $5 is
by default his cost of goods. He could invest in
one of three ad deals.

1) CPM - advertiser pays $5 CPM, or $500 to reach
100,000 people. 2% of those people (2,000) click
through to his sell page, and 5% of those people
(100) buy the software at $20 each, for a total
gross of $2,000. Total advertising cost = $500.
Gross revenue = $2,000. Cost of goods = $500. Net
profit = $1,000.

2) CPC - advertiser pays $.25 per click on a
search engine. He keeps the listing until 2,000
people have clicked through to his sell page.
Again, 5% buy (100), resulting in $2,000 gross
sales, with $500 going into advertising, $500 in
cost of goods, leaving $1,000 in profit.

3) CPA - At a $5 "Commission" (or 25%) per
purchase, the publisher promotes the product to
its audience. When 2,000 people have clicked
through to the sell page, and 5% make a purchase,
100 sales are the result. Gross revenue = $2,000.
Cost of goods = $500. Advertising fees = $500.
Net profit = $1,000.

It's all in the numbers. For any price in one
method, there is a price for the other two, which
would result in the same net. The key factors
are the advertising rates, conversion rates, cost
of the product, and profit after expenses. The net
can be the same under each model. You have to know
your conversion rate for your sell page, and the
rest is fairly easy to calculate. It's more about
who shares in the risk/reward when there are
variations to the numbers you expected.

I think many publishers will cash a check for any
ad, even when they know the don't have the right
audience, and the results for the client will stink.
Since the publisher is all about revenue, they want
their money up front for deals that probably won't
deliver sales to cover the client's expenses. That
gives online advertising a black eye, because
the client is disappointed in the medium.

Publishers should target clients who whom they can
deliver the best returns, and turn down the clients
who don't fit their profile. I know this sounds
extreme to turn down business, but it might change
the mindset of advertisers and build up good numbers
when ads are properly placed.

I don't care is an adult site gets 100,000 unique
visitors a day, if I'm selling Elizabethan poetry
books. My ads won't pull on that site. CTR
will stink. Revenues will be nill, and I'll be
disappointed in online advertising.

Regards,

Dan

************************************************************
               Dan Limbach (847) 875-5691

     Win name brand products in a compelling email game
  DVD players, computer gear, gift certificates, much more

              http://www.attritiongame.com
************************************************************





Received on Sun Nov 18 2001 - 21:14:52 CST


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