Pay Per Click ROI Calculations For Content Providers
By Sean Donahoe
Originally Published: February, 2005
Introduction
While many articles have been written on Pay Per Click ROI calculations for ecommerce providers, very little has been written for the content providers. This article will focus on how a content provider can determine how much to bid when running a pay per click campaign. After examining the basic solution, advanced topics are presented to further refine the process.
Revenue Per Visit Calculation
To determine how much to bid, the revenue per visit needs to be determined. The model presented is simplistic enough that the inputs can be easily gathered from a web analytics program.
The first step is determining the value of a page. To do this, first determine the average CPM of the ads shown on the site. Take this CPM and multiply it by the number of ads per page and divide by a thousand. This gives you the average revenue per page.
The next step is to take this average revenue per page and multiply it by the average number of pages consumed per visit.
The calculation is relatively simple.
CPM x Ads Per Page
--------------------------- x Pages per Visit = Revenue per Visit
1000
This number is the expected revenue from a visit. This is how much you expect to make per visitor. This should be your maximum bid when purchasing terms.
Example:
Assume a fictitious firm that produces sports content. Their CPM is $14; Number of ads per page is 2; pages per visit is 5. Using the formula the maximum I should bid is .14.
14 x 2
-------- x 5 = .14
1000
Implementation
Now that the value of a visit has been determined a set of keywords can be built up from the content provided. Other articles and tools exist to help you determine which words are searched on more frequently. In this stage I recommend bidding at half the level that was determined above. This gives a good starting point. This means for every visitor that clicks on your ad you make the same amount as you bid.
Example:
Continuing the scenario, with a revenue per visit of .14, I would bid .07. I receive .14 in revenue and pay out .07. Making .07 in profit.
.14 - Revenue per visit
-.07 - Cost per click (To Search Engine)
-----
.07 - Profit
Maintaining
After running your campaign for a few weeks it is important to review the results and implement more advanced bid analysis. One important piece of advice is to track those individuals coming from your paid campaign differently than those coming through the normal search engines. My work has shown that visitors may actually consume more pages per visit than a normal visitor when they arrive from a pay per click search. This is probably because they were actively searching out this content and have a desire to read more about it. The use of custom URLs along with specialized reports should allow you to identify visitors arriving from your ads.
Identifying which visits come from each keyword will allow for a customized bid value for each term. Since each keyword will have a different number of pages consumed per visit the amount bid can be raised or lowered to compensate for this.
After having a complete understanding of what a pay per click visitor will do, bids can begin being tailored to generate either a higher return or more volume. Lower bids will generate higher returns per visitor but at a lower volume. Higher bids will generate more volume but at a lower return. Your own goals may vary depending on contract requirements, bandwidth, or other business practices.
Advanced Items
Breakout Content Sections
While this method is useful for smaller sites, larger content providers should breakout content into different sections depending on CPM and content type. Certain content may command higher CPMs and is more valuable. Other sections may have a higher number of pages consumed per visit.
New/Current Visitor Benefit
Firms using more advanced tools will know the future benefit of the consumer. Paid search is a great way to reach out to visitors that may not have been to your site before. Sites with a large volume of content may be more interested in the return behavior of visitors. Advanced tracking will allow you to determine if paid search visitors return and how often. This value can be added back into the model to increase the maximum bid value.
Contract Benefits
While determining your CPM per page it is important to understand the goal of your exercise may not be generating a high return. Site run ads may be written under a contract model. Bid amounts should be posted at the maximum to ensure the contract will be fulfilled. It takes a more advanced model to be able to forecast if a contract is in danger of not being met. This triggers the campaign development and implementation process to help capture the additional traffic needed to push you over the top. This proactive methodology requires frequent tracking of campaigns and forecasting models to be able to have enough time to implement the campaign.
Time/Agency Cost
A common mistake of many smaller firms is not considering the costs of developing and maintaining a paid search process. This is especially critical in the content based paid search model. The value of a content supported visit can be much lower than those that are actually selling items. It is important to add in the overall time or agency cost to the campaign results to determine a true ROI.
Summary
In summary, content based providers should begin examining the value of a visitor to their site. With careful tracking and analysis it can be profitable to use paid search as means of driving page consuming visitors to the site. After the initial campaign has been started more advanced bidding concepts can be applied to gain even more benefit.
This article is copyrighted and has been reprinted with permission from FirstPlace Software, the makers of WebPosition.
FirstPlace Software helped define the SEO industry with the introduction of the first product to track your rankings on the major search engines and to help you improve those rankings.
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