ONLINE-ADS>> Sales commission vs. ad revenue

Kristine Loosley (kris_at_concentric.net)
Wed, 17 Sep 1997 15:00:46 -0700

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We've talked a bit about how the "pay per click" and "pay per sale" models
work -- and don't work on the web.

My company is interested in exploring the "pay per sale" model. In other
words, a web site places ads, copy, emails its subscribers -- whatever --
to acquire customers for my services and I track signups and pay out a
commission on each sale.

I like this model and would probably jump at the chance to run ads in my
unsold inventory on "spec" -- hoping to do some sales to generate revenue
that would otherwise have been filled with filler, house ads.

My question to this group is this: What about this model appeals and does
not appeal to you? Have you tried anything similar? I think the issue
comes down to revenue: If a web site publisher can generate enough $$ to
make it worth it, he/she will probably agree to this model. What that
threshold is still unclear to me, though I suppose comparing it to CPM on
sold inventory vs. the # of ads that must be displayed would be one way to
calculate it.

Bear with me on a little math. I need a sanity check here. Am I thinking
this through clearly enough?

Here's what I know:

It takes X number of page views to generate 1 clickthrough
It takes Y number of clickthroughs to generate 1 sale.

Suppose X = 100 (a 1% clickthrough rate)
Y = 100 (a 1% sellthrough rate)

If the CPM I pay is $30, then the "cost per click" at a 1% clickthrough
rate is $3, and the "cost per sale" is $300.

Of course I cut that in half if I get a better clickthrough rate -- a 2%
clickthrough rate means my cost per click is $1.50 and my cost per sale
drops to $150. Ditto on the sell-through rate. If I can do better
marketing to those who DO click, I can decrease my cost-per-sale. Same
thing is true if I can generate similar clickthrough and sellthrough rates
with lower CPM sites. In my above example, at a $20 CPM a click costs $2
and a sale costs $200.

Theoretically, then, I'd be willing to pay between $50 and $150 all day
long to sites that would generate a sell-through on their own -- by using
whatever means possible. Right? (I'm not saying $100-$300 because there
are other costs associated with selling services besides just the CPM --
banner creation, copywriting, etc. that would not be obviated in this model.)

Would I find takers for this kind of model? I'm thinking high-traffic
sites with loads of unsold inventory would be my best bet. Any other great
ideas?

Thanks!

Kristine

Kristine Loosley 10590 N. Tantau Ave.
Director of Online Strategy Cupertino, CA 95014
Concentric Network Corporation 408 342-2808
kris_at_concentric.net http://home.concentric.net

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