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by: Bob McElwain
hen you first open your new site, hits will be slow in
coming (unless you are an expert at generating them). And sales
will be correspondingly scarce. Even so, you need to be checking
your stats and sales with care. The number that matters most to
you is ...

The Value Of A Hit

By this, I mean, what is a hit worth to you? (By hit, I
mean one unique visitor or user session.) Compute this number
by dividing total sales amounts (gross profits) by the number
of hits. That is, find the total earned for say a month. This
includes your part of sales of products produced by others,
commissions on sales, and so forth. Your stats will provide
the number of unique hits.

For example, if you have a gross of \$200 for the month, and
1000 hits, the value of a hit is 200/1000. Which is 0.20 or 20
cents. If gross was only \$50, then this number is only 0.05 or
5 cents.

Moving Averages

With a mature site routinely generating hits, this number is
not likely to vary markedly from month to month. Even so, a good
plan is to include in your results a 3 (or 4) month moving
average. For example, given Jan: \$0.30, Feb: \$0.20, and Mar:
\$0.10, add these three numbers and divide by 3. (30 + 20 + 10)/3
= 60/3 = 20.

The reason this helps is that looking only at the monthly
data, the above looks like an ugly downtrend. The 3 month
average eases that downer feeling. Equally important, it helps
you keep from getting too excited about an apparent up trend.

Suppose the value for April jumps to \$0.40. For the new
average, January is excluded; you look at only the last three
months. This gives (20 + 10 + 40)/3 = 70/3 = 23.33 which is
roughly 23 cents. In considering 23 cents as opposed to 40 cents
for the month, there is a more reserved view of the sudden jump.

I chose numbers here to make things easier to follow. Actual
results for your site will look quite different. And since the
computations, while simple, can be tedious and prone to error,
most who take this sort of thing seriously use a spread sheet
program, such as Excel.

Why These Numbers Matter

The value of a hit is fundamental to what you can afford to
pay for advertising. And you'd like to stay a bit under this
figure. If the ad produces only this value per hit, the campaign
was a fizzle, for no profit was made. (The exception would be

There's a lot of trial and error in testing ads, but the ins
and outs of it are off topic here. For our purpose, suppose you
have a well tested ad that can be expected to generate 25 hits in
1000 impressions. If the value of a hit to you is 50 cents, then
you can expect a gross of 25 x \$0.50 or \$12.50.

What this means is you can afford to pay up to \$12.50 CPM
list or returns for other products. If you expect only a one
time sale, you probably will not want to pay more than \$6.25 CPM,
so that half of revenue is immediate profit.

With an established site, even given troublesome variations
month to month, it is a fairly straightforward matter to decide
what you can afford to pay for advertising. Things are
different, though, for ...

New Or Small Sites

Initially you just don't have enough hits or sales to produce
numbers that make any sense at all. There is likely to be large
variations each month. Even so, it's best to begin this kind of
tracking even when only getting started.

Probably the best approach is to forget about a 3 or 4 month
moving average, and generate an average this month for all
earlier months. Whatever your results, you can not afford to
advertise until you have a tested ad and feel confident from the
value of a hit the ad will produce profits. For a new site,
waiting a year or more before even giving advertising a try.

Most find advertising in ezines to be the most effective
approach on the Web. The trick is to find ezines directed at
expensive way. Given a poor or inadequate response, try another
ezine. But given a good response, go for it. In theory,
advertising that works can bring unlimited profits.

Ezine advertizing costs are often stated with a single price.
To make your numbers work, convert this price to CPM. This also
makes it easier to compare costs from ezine to ezine. For
example, if the circulation of an ezine is 4000 and the cost of
the ad is \$20, you are paying \$5 CPM.

Other Paths

I've haven't heard any recent reports of good success with
banner advertising using the CPM model. Some are reporting
success with the pay-per-click model, which means you pay only
for clickthroughs to your site. This is essentially the same
model used with the pay-per-click search engines such as the one
at GoTo.Com. There are no tough decisions here. If the value of
a hit to you is greater than what you must pay for a click to
your site, go for it. If it's not, ignore these avenues until
it is.

With an established site, several search engines, such as
Google, offer some interesting possibilities I have not tested.
Pricy, though, for new or small sites.

Directories

To submit a listing to Yahoo requires payment of \$199.
Regardless of the value of a hit to you, submit as soon as your
site is sufficiently polished. Consider it a one time
advertising cost, and don't look back. Yahoo may deliver as
much as a third of search engine related traffic.

LookSmart is not such a sure thing. Also \$199, they're
asking too much, in my opinion. But I still recommend paying the
fee. Again, it's a one time cost. Over time, a listing will pay
for itself, and may ultimately do so many times over.

SNAP is another matter. They also ask for \$199 for a listing
in their "Top Sites" directory. I don't think it's worth it.
And I have not heard others recommend it. But it is an option.

DMOZ is a must. Submitting a listing is free. And if you
find a second category into which your site fits well, a second
submission about a month later works well.

So When Should An Advertising Campaign Be Launched?

As soon as the value of a hit and a tested ad will produce
profits. Until this point is reached, advertising is a waste
of money.

For a new or sluggish site, the way to go is to keep working
at boosting your CR (Conversion Ratio). That is, continuously
examine all elements in all paths leading to sales, in search of
improvements that bring a higher CR. By increasing your CR, you
increase the value of a hit. Ignore all thoughts of advertising
until your CR is sufficient to produce a hit value high enough
to cover the costs of placing ads.

But once this happens, go for it. All out.

Bob McElwain
Want to build a winning site? Improve one you already
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