Re: CPM Pricing Models

From: Daniel Limbach <dan_at_attritiongame.com>
Date: Fri 18 Jan 2002 14:28:26 -0500

Rob Frankel <Rob_at_RobFrankel.com> Wrote:

> Although there are merits to both, my feeling is that now
> more than ever, advertisers want to see return on investment
> that's trackable.

This is something I just don't understand. If the above
statement is true, exactly what are the merits of CPM
compared to CPA? Lower cost? Not when you actually
calculate ROI. I don't think there are any advantages,
unless you place some value on an unclicked impression
under the auspices of "Branding." CPA offers guaranteed
results, while CPM carries the risk that nobody will click
through and your investment vanishes into the ether.

The only way CPM can beat CPA is if you have a perfect ad,
which results in an unusual clickthrough rate. The
advertising costs could then be less for CPM than than
CPA when you crunch the numbers at the end of the promotion.
This is an unlikely scenario, however. Very few ads stretch
beyond the normal range of clickthrough rates.

People selling CPM advertising are scared to death that
they will be held accountable for their medium, their
traffic, and the quality of their population. They want
to cash checks and put the ads in their ad management
system. Period. In defense, they also don't want to
carry the risk of poor clickthrough rates on bad ads.

The best way to profit from Internet marketing is to have
a high margin product at a relatively high price. You need
fewer sales before you recoup your advertising investment.

Selling a $10 product with a gross margin of $2 won't cut
it. Ad costs will eat all the profits, and you need lots
of sales to mak any money. Selling a $100 product with an
$80 gross margin gives you a lot more to play with for
 marketing, amd still make a nice profit.

When someone comes out with a "Cost per sale" procing model,
we'll really have something. It's how the affiliate programs
work. The merchant is paying webmasters and content providers
an amount for each sale generated for the merchant.

Here's where it gets sticky. If a website draws quality,
targeted people who buy things on the Internet, as many
sites claim, why don't these websites just join affiliate
programs and promote them? No more ad selling. No more
dealing with ad clients. Just watch the huge traffic
who comes to the site click through the affiliate links
and buy the products. Wait for the checks to arrive in the
mail. The reason is, the average website is not effectively
converting leads into sales for their advertisers or their
affiliate programs. A website makes more money selling ads
that don't deliver a good ROI than promoting affiliate
programs that don't generate significant cash flow.

Just my thoughts.

Dan

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               Dan Limbach (847) 875-5691

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Received on Fri Jan 18 2002 - 13:28:26 CST