I get a lot of questions from clients and readers about how to value web traffic. This is important for content publishers (valuing and selling ad space) and internet marketers (especially search engine marketers looking to set a maximum bid). I was recently asked these two questions, from different sides of the coin:
“I want to sell ads privately on my blog, how much should I charge?”
“I want to buy traffic to my website, how much should I pay per click?”
The answer to both questions, is the same answer I give to almost all questions about Internet Marketing:
Of course, if you’re a publisher, you want to charge as much as possible for ad space; while advertisers want to pay as little as possible for their traffic.
The online advertising marketplace is extremely dynamic, with countless variables at work determining the value of each click. Some of these variables are objective and measurable, while others are more subjective.
Here’s some basic math I like to use to explain this to clients. I’ll make up a scenario where a company that sells travel guidebooks wants to advertise their products on a travel-writer’s blog.
First, we need to understand some numbers…
Let’s say that the guidebook company has an e-commerce website where they sell their products. Let’s say that their average gross margin per transaction is $10, and that their website converts 2% of its visitors into paying customers. We could multiply $10 by 2% to get a rough value of each visitor of 20 cents.
For the purposes of this example. we’re ignoring the percentage and value of the people who will return and buy again as repeat customers.
So, if the guidebook company were able to buy 10,000 clicks at 15 cents a piece, they’d pay $1,500 for their traffic. They’d expect 2% of those 10,000 visitors to make a purchase (200 transactions) and if the average transaction yields $10, that’s worth $2,000. Subtract the $1,500 they paid for the traffic and they net $500 on the campaign. With this (admittedly oversimplified) example, the guidebook company should make a profit whenever they buy traffic for less than 20 cents per visitor. One of our consultants likes to say, “If someone can buy dollars for a nickle apiece, I suggest they do it all day long.”
On the other side of this relationship, let’s look at the travel-writer who wants to sell ad space on his blog. Let’s give him some numbers too. Let’s say he has 10,000 page views per month. Traffic is the simplest variable to determine, with just a quick look at one’s Google Analytics. The difficult variable for the publisher is the Click-Through Rate of the advertiser’s ad. There are many types of ads (text, image, horizontal, vertical…), and even very similar ads can have extreme variation in click-rate. So, this is a the big challenge for publishers in valuation. My suggestion is for publishers to start running ads on their site with an automated ad management system, like Google Adsense. The idea here is to use Google’s sophistication to serve ads as well as they know how to do, and to pull an average click-through rate from this data. Let’s say the travel-writer’s blog has an ad click-rate of 2%.
Multiply that 2% by 10,000 page views and you end up with 200 clicks per month. In the case of the guidebook company, the value of those 200 visitors might be (200 visitors x 20 cents visitor value = $40).
In this example, $40 is a fair value for the Advertiser to pay the Publisher for their ad to run for 1 month.
Again, this is an extremely simplified example, and each situation is unique. Negotiating advertising rates eventually comes down to having a price that both sides can agree on. In most cases, someone is paying too much or too little. The goal of this article is to help you think about some ways you might value your website traffic.
The good news, is that there are things that both sides can do to make the relationship more profitable. In a dynamic marketplace of interdependent variables, if you can shift any one variable, the impact is often exponential. In the above example, if the advertiser had an ad which was twice as effective at getting clicks and their website conversion rate was increased to 5%, their profit on this monthly campaign would increase from $40 to $200. This shows the importance of Conversion Optimization and reviewing the effectiveness of your advertising creatives. Conversely, if the publisher could increase his traffic via SEO, or even buy traffic to his site for less than he could sell it for…you get the idea.
What do you think?
Do you have a different methodology for valuing your traffic? Share your thoughts in the comments below.
Do you think it’s more common for advertisers to pay too much, or too little?
Are you a publisher looking to maximize your ad revenue, or an advertiser looking to maximize your profit? Let’s talk.