Step 3: Paid advertising for your site
(# of sales) / (# of clickthroughs) = Conversion Ratio (CR)
The key to effective advertising on the Internet is to spend less on
advertising than you will earn in profits from your website. Sounds simple
but many companies miss this essential point. Determining
your ROI (return on investment) is an essential part of any Internet advertising
campaign. The first thing you should determine is what percentage of the visitors
to your site make a purchase. This is also known as the Conversion Ratio:
The next step is to determine how much each visitor to your site is worth
based on what percentage of your visitors 'convert' into sales. This is known
as the Value per Visitor.
(Conversion ratio) * (Value of each sale) = Value per Visitor (VPV)
Here's an example taken from the Blue Widget Company:
The Blue Widget Company gets 3000 visitors to their site each month and of
those visitors 150 purchase a widget. Thus the conversion ratio is 150
divided by 3000 or 5%. In other words, five percent of the visitors to the
website will purchase a widget. Suppose the widgets cost $20.00 each. Thus
the Value per Visitor will be 0.05 * $20.00 = $1.00. Each person who visits
the site is worth one dollar in income for the company.
Why is this stuff important?
VPV - CPC = Net Gain
Why do we need to know how much each visitor to the site is worth? The
reason for this is so we can determine how much you can afford to spend on
advertising. If it costs $1.25 to get each person to the site - but we only
earn $1.00 from that person then we will be out of business very soon. The
trick is to keep our cost per click (or cost per visitor) LESS than our
estimated value per visitor. The net profit will be determined by this formula:
You may wish to keep your cost per click below a certain amount - say 25% of
your VPV. Then your net gain will be 75%. For every 25 cents you spend you
will be earning $1.00 for a profit of $0.75. Understand? Good - let's move
on to the next section:
Pay per Click Advertising
PPC advertising is one of the most cost-effective methods of driving quality
traffic to your website. Here's how it works: you sign up for an account at
a PPC search engine like GoTo.com.
You choose a list of keyword phrases that are related to your site and submit
them to the search engine. You are allowed to 'bid for placement' for your
selected keyword phrases. Higher bids are ranked closer to the top of the listings,
lower bids are further down the page. As you can imagine, the number one spot
gets a lot more clickthroughs than the number 35 spot, but it costs a lot more
too. The trick is to bid as much as you can afford to pay per click based on
your estimated VPV. If each clickthrough will earn you 50 cents - then the
absolute maximum you could bid and still turn a profit would be 49 cents. Probably
you should start by keeping your bids low - say 5 cents a click and work up from there.
To get an idea how the GoTo.com bidding system works have a look at this sample
search for 'water filters'.
At the time of this writing the top bid is $1.62. That's a lot to pay for each
clickthrough but apparently someone has determined that each customer who visits
their site is worth more than that. To open a GoTo.com bidding account click here.
For a list of other pay per click search engines you may want to visit
Other forms of Paid Advertising
We have already mentioned the pay-for-inclusion setup on web directories
like Yahoo, Looksmart, and NBCi. There is one other service we recommend and
that is the Inktomi paid submission. Inktomi is one of the largest search engine
databases and powers such large sites as AOL, Iwon, Hotbot, Goto (unpaid listings)
and many more. Having your site included in Inktomi's database will certainly
help your web ranking. It costs $30 to submit your homepage and $15 for each
additional URL within your site. You can submit as many pages as you wish but
it can become quite costly if you have a large site. The fee will guarantee
that your pages are added to the Inktomi database within 48 hours, and that all
your pages will be reindexed every 48 hours for one year. The advantage to
having your pages refreshed every 48 hours is that you can optimize your pages
and test them every two days instead of every two months. To submit your site
to Inktomi's paid service click here.