Written by Jay Ratkowski
Despite the implications of the title, I’m actually a fan of display ads. I realize that most people ignore them, clickthrough rates are atrocious, response rates are equally bad, and as many as half of all display impressions either unseen or viewed by bots. That’s a lot stacked against web banners, but the upside is that the inventory is infinite and the demand is nowhere near infinite. Meaning, you can get a ton of value if you’re a savvy buyer.
The problem is, media companies try to sell display ads the same way they sell traditional advertising, on a CPM basis. It just doesn’t work. Impressions are about frequency and frequency is about recall. Banner ads are about clicks. You can’t convey a meaningful message in a 120×600 graphic. It’s been a couple decades of banner ads and nobody has done it to date, don’t hold your breath for a change. But you still can make an impact with direct response. If a potential customer clicks your banner and your website delivers a meaningful message, you can win with banners.
This usually doesn’t work because, again, we’re trying to sell these things like they’re TV ads. CPM and direct response don’t mix online. The math just doesn’t work.
Let’s look at a hypothetical example. Let’s say whatever your conversion happens at a 2% clip and is worth $50 (product sales, leads, etc).
Here’s how a typical month of CPM based display advertising might look for you.
Places like Comscore & DoubleClick can validate that a 0.1% CTR is fairly optimistic
That’s bad news for everyone. At this point, the company selling you this advertising will do two things.
- Try to convince you that view-through conversions should have at least a 30 day window and should be valued at 50% of a click-through conversion.
- Sell you on remarketing, also at a CPM basis, also putting a premium value on view-throughs.
This is a tough pill to swallow for anyone who has had to justify to a senior manager that their digital efforts are profitable.
But what if we throw away upsells and questionable view-through valuation and just change the pricing model? Since this is direct-response digital advertising, what if we only charge for clicks?
In case you really value impressions, the CPC model also got us a ton more of those.
I realize that many people will not consider a direct response campaign breaking even a success. And it’s not meant to be. The larger point is that this gives us a much better starting point for optimization. By focusing on our landing page, even small boosts in conversion rate will send us towards profitability. Those same changes in the CPM model will just leave us at less of a loss.
For example, let’s say we work our tails off and get a 50% improvement in conversion rate. Here’s how those same two scenarios now look:
And let’s also not forget that we’re getting 4x more clicks in the CPC scenario. That means if you decide to add remarketing, you have a much larger base of users to work with, increasing the chances of profitability. Not to mention we have greater opportunity for things like assisted conversions (and you’re going to have a much easier time convincing your CMO that a click-assisted conversion should be given weight than you will with an impression-assisted one).
Need more convincing that CPC beats CPM? Look at what the industry leader is doing. AdWords does display ads on a CPC basis and has all the regular Google features like automated click-fraud protection and crediting. They also let you exclude things way beyond the explicit content that most media buyers protect you from. You can avoid parked domains, error pages, even below-the-fold impressions. Since Google makes money when people click, not when an ad hopefully renders, it’s obviously in their best interest to offer features that encourage more clicks. And in this case, it’s also in the best interest of the advertiser.
Go ahead, give banner ads a try. Just be sure to go with a pricing model that makes sense. Don’t put yourself in an impossible situation before you get your first click.
