Buying Flat-Rate Text Ads

19 years ago

Do you ever wonder if purchasing flat-rate text advertising on high-traffic sites works? Well the answer is Yes, they can perform extremely well, as long as you do the correct research and know your numbers. Advertisers can gain valuable, targeted, high-volume traffic if the monthly price is right. Here are some tips on how I go about purchasing flat-rate text ads. Hope you all enjoy algebra!

Research

With some prior testing, you should know your estimated conversion numbers. In this example, I’ll be using the following fictitious statistics for an email marketing campaign:

Max Cost Per Action (Subscriber Value): £6.00
Target Gross Margin: Minimum 50%
Demographic: Males 18 – 40 with time and money to spare

Formulas

Make sure you know your formulas. For reference, I’ll be using the following basic formulas:

Cost Per Click (CPC) = Total Cost / Total Clicks
Conversion Rate (CR) = Total Conversions / Total Clicks
Cost Per Action (CPA) = CPC / Conversion Rate
Gross Margin (GM) = (Subscriber Value – CPA) / Subscriber Value

Doing the Math

Flat-rate ad buys is based on math, but you should also consider the ad’s placement. Above the fold is always desirable. Let’s do some calculations based on the following fictitious site stats to see if we have a chance of getting a positive return on a one-week ad buy.

Tip: Buying an ad at a one-week interval first allows you to test without committing to an entire month’s purchase. Some ad networks such as AdBrite allow some one week, and even one day, testing.

Estimated publisher impressions per month: 550,000
Alexa ranking: 21,000 (can indicate stable traffic numbers; take with a grain of salt)
Demographic: Males 18 – 35 with time and money to spare
Monthly text ad buy: £600
Placement: Right column, above the fold
Competing ads: Total of five

Now let’s do some calculations to see if this can be a profitable campaign.

Estimated click-through-rate (CTR) is 0.50%. There is no real way to know this until your ad is live on the site, so let’s estimate it for now. Therefore, clicks equal 2,750 for the month, or approximately 690 for one week. We will also conservatively estimate conversion rate to be 10%.

Clicks: (550,000 x .005) / 4 = 687.5
Cost Per Click: (£600/4) / 687.5 = £0.22
Conversion Rate: 10%
Cost Per Action: £0.22 / 0.10 = £2.20
Gross Margin: (£6.00 – £2.20) / £6.00 = 63.33%

Now let’s see if this will work with an estimated conversion rate of only 5%.

Clicks: (550,000 x .005) / 4 = 687.5
Cost Per Click: (£600/4) / 687.5 = £0.22
Conversion Rate: 5%
Cost Per Action: £0.22 / 0.05 = £4.40
Gross Margin: (£6.00 – £4.40) / £6.00 = 26.67%

So it appears the difference between a conversion rate of 5% and 10% can determine whether or not we make our targeted gross margin of 50%. Let’s find out what our minimum conversion rate is to meet this goal. How exciting is this?!

Calculating Minimum Conversion Rate

If the conversion rate falls below a certain point for this particular campaign during our one-week test, it may not be wise to purchase an entire month’s ad space. Let’s find out what our minimum conversion rate is. We do so by assuming the gross margin is 50% and finding our threshold CPA. Time to plug and chug, guys!

If target GM = 0.50, then:

0.50 = (£6 – x) / £6
£6 x 0.50 = £6 – x
£3 = £6 – x
-£3 = -x
x = £3

So in order to reach a 50% gross margin, our maximum CPA is £3.00. Now we can calculate the minimum conversion rate. If CPA = CPC / CR, then CR = CPC / CPA.

If CPA = £3, then:

£0.22 / £3 = 7.33%

The minimum conversion rate is 7.33%. Let’s double check our algebra!

Clicks: (550,000 x .005) / 4 = 687.5
Cost Per Click: (£600/4) / 687.5 = £0.22
Conversion Rate: 7.33%
Cost Per Action: £0.22 / 0.0733 = £3.00
Gross Margin: (£6.00 – £3.00) / £6.00 = 50%

This means if you get a conversion rate near or below 7%, you probably shouldn’t continue to buy. Keep in mind that for this example, I’ve estimated CTR. A lower CTR will require a higher minimum CR. If your ads, clicks and landing page are performing well and you’re converting at 15%, then you’re money!