Are Industry Averages Meaningful?

We all use averages to help set our expectations. They serve as guideposts in our uncertain journey through life, allowing for the easy categorization of objects, events, and experiences. Averages help us accommodate the unknown and anticipate the future.

In its reliance upon averages, the interactive advertising and marketing industry is no exception. I would argue, in fact, that it is more anchored to averages than just about any other industry. Journalists, consultants doing research, and new clients ask me repeatedly for industry averages.

  • “What is the average CPM on the Web?”

  • “What is the average click-through rate for the Web?”
  • “What is the average cost per acquisition for someone trying to sell product on the Web?”
  • “What average percentage of an advertising budget is allocated to online?”

The quest for quotable industry averages on the Internet is a more desperate pursuit than it is for most other businesses. The Web is a medium where media, sales channels, and corporate communications converge in ways we have never seen before. For those who were in marketing and advertising before the dawn of the Internet, the years and decades of training and experience suddenly appear at risk of becoming irrelevant as rules of thumb and standard average reaches and frequencies no longer apply.

In this unsure and frightening environment, the desire for something to cling to is enormous. So let’s review a few of the online industry averages.

Click-through rates (CTR). The most ubiquitous and talked-about metric on the Web has reigned supreme since the beginning. And why not? When the advertising community’s early adopters first came upon the Web, they realized its potential as possibly the most powerful advertising medium yet. There was a promise for accountability that the marketing world had never seen. Not only accountability, but instantly available data. However, the fire of enthusiasm was stoked by the potential of the Web and not its reality. So this nascent industry settled upon a ready-to-hand and easy-to-grasp metric to demonstrate the power of the Web and sell the idea of the medium to advertisers.

CTRs have been steadily declining since the very first click. And they really aren’t a good indicator of whether or not a given ad campaign had any real impact. But the CTR still has some currency in the industry and continues to be of particular interest to the industry press.

The current industry average click-through rate, as reported by AdKnowledge, is about .51 percent.

Can this industry average be taken into consideration when working on campaign-result projections?

Sure, but don’t be surprised if the results don’t match your predictions. When making predictions without having a past to base them on, you tend to make predictions that are about as tangible as hot air and rabbit tracks. Response rates depend on many factors, making an industry average misleading.

There are myriad influences on response rates for which there are no variables to fit into a formula. What about the creative? Is the copy compelling? Does it suit the environment established by the medium? Is it rich media? What’s the offer or benefit featured in the value proposition? Have I targeted the right audience? What is the interest level in my product or service category?

If you are being asked for a response-rate industry average, feel free to use the one-half percent, but be aware that there are a multitude of influences in the real world that cannot be accounted for in a media laboratory.

Cost per thousand impressions (CPM). This is probably the most imprecise industry average out there. If it comes from an “official” source, that source only has at its disposal publicly available information by which to come to any conclusion. That means an aggregate of rate cards must be used to get the number.

I’ve consulted with numerous media outfits and others looking for ways to monetize their sites, and all of them have asked, “What is the average CPM out there that I can charge?”

Or clients will ask, “What is the average CPM I can expect to pay?”

To quote AdKnowledge’s Third Quarter 2000 Online Advertising Report, the average CPM is $33.64. But is that really true? I bet if you asked the top 10 or 20 agencies regularly committing online ad buys, you’d get a number less than half of that, or around $10.

Again, the industry average isn’t very meaningful in a practical sense, but it does provide boundaries for one’s thoughts and expectations with regard to pricing online media. Yes, there is media out there that sells for more than that (namely tech sites and keywords), but is that an average? No, it’s not.

Cost per acquisition (CPA). This is the one industry average everyone really wants. After all, this is what it’s all about so far, isn’t it? How much does it cost to acquire a new customer on the Web? Whether I’m a publisher, a retailer, or a service, my hard goals and bottom line are most materially affected by this figure. This is the pudding in which the proof of return on investment is set.

When I’m asked this question, my response is always, “What industry are you talking about?”

The average cost per acquisition on the Web varies widely from category to category, as does the tolerance for these costs. If I’m selling cars or financial services, my cost per acquisition can be much higher than if I’m selling books and CDs. For financial services, some sources report $200 to $250 CPAs, whereas for books and CDs it is more like $60. (Jupiter and The Standard have reported on this.) But these CPAs are not specific to any one advertiser. And the numbers include as part of their factoring the ad-spending speed binge of late 1999/early 2000. The industry hasn’t been around long enough, nor has it been normalized enough to be immune to the market anomalies of the last year.

Is There Meaning?

This is a very philosophical question, but, as it pertains to just this topic, the answer is: sort of.

Industry averages are meaningful only when given the proper consideration and weight: They can provide direction on an unfamiliar road you are traveling, but they can’t make the journey for you or tell you what to expect when you get there. The truth being sought will be found only in the execution of the experience and not in the art of prognostication.

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