Faithful Media Buying 101 readers may not have realized it, but they’ve been helping me construct an upcoming textbook about online marketing. It’s due out sometime in the fall, and I’ve been taking parts of some articles and using them as the kernels for full chapters on issues such as email marketing and media negotiations.
So when it came to figuring out how we would market the book, I knew I’d have to swallow my own medicine. Instead of acting as the ad agency, I was put in the position of a client, taking my own advice. And in the process, I became viscerally aware of things such as out-of-pocket costs and delivery guarantees.
What I Learned
Aside from learning that publishers don’t tend to share a lot of the proceeds with writers, I learned a great deal about which types of media deals make sense. Largely, these were the deals based on performance.
When the marketing for the book breaks later in the fall, we will be driving people to a small site where they can read a sample chapter, see an author bio, and generally get propagandized into wanting to buy a copy.
So we immediately see a familiar algebraic equation taking shape:
Impressions x Response Rate x Purchase Rate = Sales
In this case, we’ll limit ourselves to email marketing and make some educated guesses as to what the rates might be based on past experience with other, similar products.
A typical response rate to an email campaign for a piece of intellectual property might be about 0.75 percent. With such a boring book as an advertising textbook, I’m tempted to guess lower, but since we’ll be targeting only advertising types, I’ll leave it up there. The purchase rate will likely be relatively high for this audience, because we’re dealing with a very targeted medium. In fact, I cheated by getting some early response rates. In response to a test run a few weeks ago, about 25 percent of the people who responded to an early offer actually signed up to purchase the book once it’s released. That gives me enough confidence to assume a 15 percent purchase rate.
Also assuming that the publisher makes about $5 profit per sale, we can back-fill to figure out what type of cost per thousand (CPM) we need to break even with online marketing spending.
If we take an arbitrary number of impressions, such as 500,000, we can plug that into the equation above to guess at how many sales we would garner:
500,000 x 0.0075 x 0.15 = 562.5
And that would earn the publisher $2,812.50. With that profit figure at the very end, we can now figure out our break-even CPM rate. To break even with 500,000 impressions, the CPM rate would have to be at or below $5.625.
That CPM is a far cry from published rate cards, at least rate cards in the advertising trade press industry. It is, however, a CPM that many, many clients find is close to the break-even point for sales of their own products — an interesting piece of evidence as to where the final settling point of ad rates will be.
Not desiring to cut their CPM rates by a factor of 10, several ad-related sites have agreed to instead conduct e-commerce deals, whereby that $5-per-book profit margin will be split between site and publisher. In this fashion, the sites are encouraged to give as much exposure as is efficiently possible, without having to worry about negotiating a CPM that both sides predict will be worthwhile to buyer and seller.
It also prevents me from worrying too much about the potential fraud issues explored in last week’s article.
The e-commerce deal has become the face-saving method by which sites can effectively lower their CPMs to rates the media buyers find profitable. The most recent statistics show that a majority of media deals done today involve at least a partial performance-based cost component.
I suspect that this will become the de facto standard until sites recognize their CPM rates are too high. And I think that’s a shame, because I could convince more advertisers to put a lot more of their marketing dollars today into the Internet medium if I could show them impression rates that compared favorably to those in print and other media. Traditional media advertisers, already reluctant to try something new, are less likely to dive into the new medium when they can’t directly see its relative efficiency.
Until the sites cotton to that fact, companies such as the one publishing “Tactical Guide to Online Marketing” will exploit an artificially low demand condition in the industry to win decent e-commerce deals.
Programmatic is taking over the digital advertising world, and at an even faster rate than expected, according to eMarketer, which raised its forecast for programmatic ad spending in the U.S. on the back of growth in mobile and video programmatic buys.
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