Here are the 8 steps necessary to develop your site into a revenue source from advertising:
- Provide dynamite content
- Determine your site's income potential
- Prepare your site to display banner ads
- Conduct a demographic study
- Set prices for banner ads
- Register with the ad directories
- Contact advertisers and media buyers
- Go to the beach
Step 1. Provide dynamite content
As an e-commerce consultant I get a lot of calls and hear a lot of half-baked business plans. They often include substantial or total revenue from advertising. What these business plans usually forget is that getting traffic to a site is usually very expensive.
In my view, the only way to get enough traffic to support an advertising model is to create such tremendous value that the site gets written up in the media, people tell their friends about it, and they WANT to come. The site has to be attractive on its own merits, and that takes rich content:
- Information -- articles, reviews, or massive links to other sites in a field
- Free Software downloads
- Entertainment -- online games, music, photos, videos, fun stuff
- Online services -- calculators, submitters, site monitors, etc.
Good, unique content is expensive to produce. You either write it yourself, or pay others to write it. If you accept free content, then your site is no longer unique, since those same features can be found on dozens of other sites. The same goes for developing entertainment and online services.
These days, you need to find a niche where you and your team are experts, and build the offerings of your site with such excellence that many, many people are attracted to what you've prepared.
Step 2. Determine your site's income potential
A number of sites have already developed significant traffic. But how much traffic do you need to make advertising pay enough to be worthwhile? Let's do the numbers.
First, I need to introduce you to some terms used in the online advertising industry:
- Banner or Page Views -- the number of times the HTML pages on your site are looked at. "Hits" isn't precise enough, since when a webpage is requested by a visitor's web browser, it creates a "hit" to the server for every graphic on the page.
- Impressions -- means the same as banner or page views. It implies that a banner ad makes an "impression" on the viewer, so this is a favorite term for ad salespeople.
- Inventory -- the number of impressions you have to sell each month.
- CPM (Cost per Thousand) -- This term, imported from the print and TV advertising industries, refers to the price charged to have 1,000 pairs of eyeballs see an ad. $35 CPM (the current rate card average) means that it costs $35 to get 1000 people to see a banner ad. (Note: the M in CPM is the Roman numeral for 1000.)
- Rate Card -- Statement of your standard rates, minimum ad buys, banner sizes, payment policies, etc. for advertising on your site. Advertising commonly sells for somewhat under rate card prices, but they're a starting place.
- CTR (Click Through Rate) -- The percentage of people who see an ad that actually click on it and go to the advertiser's site. The national average is 0.5%, though ads on targeted sites such as Wilson Internet Services typically have CTRs of 2% to 3% or higher -- sometimes substantially higher.
- Gross -- The price paid for advertising by companies when they purchase advertising themselves.
- Net -- The amount the siteowner is paid for advertising after the advertiser's ad agency or media buyer subtracts their 15% fee. For this 15% fee, the media buyer scouts out and negotiates the best place and prices for a company's ads.
Of course, there are other terms, but this will get us started.
How much traffic would it take to earn $1000 in ad revenue? Let's do the math, making the assumption that your advertisers pay the average of $35 CPM. The formula is:
| Gross Revenue = | Impressions x CPM / 1000 |
| $1,000 = | 28,572 impression x $35.00 / 1000 |
So to make $1,000 gross revenue you need to sell 28,572 impressions or banner views. Selling advertising has its own set of costs and hassles, so make sure you'll be receiving enough compensation to make it worthwhile before you embark on this venture.
The Real Average CPM
You need to be aware, however, that the $35 CPM rate card average may be misleading. With millions of sites, and not enough ads to go around, a great number of smaller sites sell ads for $1 to $10 CPM, and much inventory goes unsold. Your site will need to have some demonstrable economic value to an advertiser before you can sell it at higher prices. Untargeted sites have little value to advertisers.
Industry consultant Mark Welch of Adability (http://www.adability.com) insists that the average price of banner ads (vs. the announced rate card prices) is from $1 to $3 CPM, since one must include both sold and unsold inventory in the averages. Keep that in mind.
Michele Schott, Director of Marketing Communications at AdKnowledge (http://www.adknowledge.com), on the other hand, finds that she can often get 10% to 20% off rate card prices for her ad agency's clients, but seldom more. She's found, at least for business-to-business publications, there is high demand and limited inventory, and thus relatively high prices.
It comes down to a question of supply and demand. If you have a site that is valued by advertisers, you'll sell more ads, and you'll be able to demand higher prices. We'll come back to pricing in a few minutes.
Step 3. Prepare your site to display banner ads
At its simplest, a banner ad is a linked graphic. So conceivably, you could take your advertiser's banner ad, link it to his site, and paste this HTML code at the top of each webpage on your site. This works well until the advertiser changes or you have more than one advertiser who will need to share the available page views. At that point you need a banner serving program to simplify administration.
A banner serving or ad management program "rotates" your advertisers' banner ads throughout your site, allows you to show some banners more often than others, and keeps track of the statistics of impressions, click-throughs, and click-through rates. Expect to pay $50 to $20,000 for a banner serving program. You'll need some technical expertise to install such a program on your webserver and get it running, though operating such a program can be accomplished via a web browser by a person with average computer skills after some instruction. (See the accompanying article "Ins and Outs of Displaying Banner Ads")
Another alternative is to use a third-party banner serving system. You put their code on your web pages, and they take care of placing banners on your site -- for a fee, of course. You might also consider Banner Networks (See the accompanying article "Pros and Cons of Banner Networks and Exchanges")
Once you've set up your site so you can display banners easily, I suggest that you select some affiliate programs that show promise -- or some free ads to an advertiser you're trying to woo -- and display those banner ads on your site at the beginning. It's important that you look like you're ready for business in order for advertisers to take you seriously.
Step 4. Conduct a demographic study
But for you to get advertisers, they need to be convinced that the visitors to your site are good prospects to purchase their products or services. To do this you conduct a demographic survey.
Preparing a demographic profile of visitors first involves developing a set of multiple-choice questions appropriate to your site. Wilson Internet Services is a business-to-business site, so I ask information about the visitor's area of business, job responsibilities, amount of budget he or she influences, etc. If your site attracts primarily consumers, you need to find out gender, age, interests, average household income, etc. Your purpose is to answer the questions that a potential advertiser will be asking about your visitors.
Next set up an HTML form on your site that writes answers to a data file on the site that you can later download and analyze using tools such as Microsoft Access or Excel.
To encourage people to respond to your questionnaire, however, you'll need to offer some inducement. Enter them in a contest that offers a free trip for two to Tahiti -- or Toledo, for that matter. Offer them a free book or a free ticket. You might see what some of your potential advertisers might want to give away, and strike a deal to offer that; it doesn't necessarily have to come out of your pocket. The point is, however, that unless you offer an inducement, you'll get few questionnaires completed.
Once you've collected the material and analyzed it, you need to write it up in readable form, interspersed with graphs and pie charts. Media buyers need to understand the salient facts of your audience, so make it clear. Select the data that you think your advertisers need to make a good decision and leave out the rest.
As you may have concluded, preparing a good demographic profile is a lot of work. You may need to outsource this to a company skilled in market research, or a grad student at the local university.
Is a demographic profile absolutely necessary? you ask, hoping to be able to skip this arduous task. Yes, I reply, if you really want to be taken seriously by advertisers and media buyers with significant money to spend. The other kind of advertisers don't care as much about demographic profiles.
Step 5. Set prices for banner ads
What should you charge for advertising on your site? The short answer is: Whatever the traffic will bear. In other words, you need to determine the market value of your site.
The CPM you can get for banner ads varies from $1 CPM to $100 CPM. It all depends upon the kind of people who are attracted to your site, and their perceived economic value to the advertiser.
| Low Value $1 to $20 |
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| Medium Value $15 to $35 | Specific demographic groups with economic clout, for example
Notice this can be any general age group, but must be specific enough that it is of interest to a particular advertiser. I'm speaking in generalities here; there are no guarantees. It's a case of supply and demand, and your ability to represent your site effectively AND get good results for your advertisers. |
| Higher Value $35 to $60 |
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| Top Value $60 to $100 |
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You can sample of our rate cards and demographic profile for Wilson Internet Services at http://wilsonweb.com/ads/
Now you can see why a demographic profile is vital if you want to sell at CPMs above $1 to $5. You must demonstrate to the advertiser the economic value of your visitors.
I recommend setting your prices at the higher end of what you think you can get. You can always offer a "deal" to make a media buyer look good for her client. Actual sale prices are often lower than stated Rate Card prices. I don't recommend trying to offer the "low price advantage" in your category. The lower the price you offer, the less value will be perceived by your potential advertiser. Set a good price, and then seek to convince the advertiser that your site is worth it.
Step 6. Register with the ad directories
Once you've set your prices and done a demographic study, then register your site at places media buyers look for sites that take advertising:
- AdKnowledge http://connection.marketmatch.com/
- SRDS (Standard Rate and Data Service) http://www.srds.com/get_listed/index2.html
Look at AdKnowledge's questions first. You'll probably need to dig up some information from log file analysis. Then go and fill out the form as fully as possible. Both these companies sell their lists to media buyers who then study them to find good matches for particular clients.
Step 7. Contact advertisers and media buyers
If you've done the steps outlined above, it's now time to contact the media buyers for interactive ad agencies. You can find them listed at Yahoo. Your goal is for them to look at your Rate Card, demographic data, etc. Be ready to deal as you begin to land these advertising agencies and their clients. Once you've established the value of your site to them, your goal is to win repeat business from the same and new clients that the agency represents.
You can also try to sell to the marketing manger for advertisers you think might be well suited for your site. By all means try this. But be aware that savvy marketing managers often outsource media buying to ad agencies. The ad agency doesn't cost any more than if the marketing manager purchased advertising directly from the siteowner, since the ad agency makes its money from the 15% difference between what it pays the siteowner and what their advertiser client pays the ad agency.
Why in the world should a siteowner deal with ad agencies when it means earning 15% less revenue? What's more, ad agencies are notoriously slow to pay. The reason, frankly, is because ad agencies are usually the key to companies with large advertising budgets.
Few small businesses have the "branding" mentality -- or the budget -- to purchase $35+ CPM banner ads month after month. Only better-funded companies can do this. So you must court the ad agencies in order to get the larger, consistent advertisers. At the same time court the marketing managers of obvious advertising matches. Sure, this is hard work, but it makes the difference between high CPMs and low or no CPMs.
Step 8. Go to the beach
The really big question is whether you'll get to go to the beach anytime soon. There's never enough time to do everything you ought to do. But you need to set limits. If you're a beach person, definitely schedule some beach time, whether you can "afford" it or not. You'll need the refreshment it provides to hit it hard again next week.
No, generating ad revenue from your site probably won't get you rich. It probably won't even bring in enough to be a primary revenue source for your business, at least right away. But as a supplement to other sources of revenue, it can become significant if you are willing to invest time and energy in developing it.
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