The cost of advertising

Frank Martin has a great blog, and recently posted 30 questions to marketers. I think a lot of marketers–particularly new marketers–need to think long and hard about these questions, even if Frank intended them to be rhetorical. The conventional wisdom is high on convention and low on wisdom.

The first one I’ll tackle is question #11: “Why are advertising prices tied to cpm rather than increases to revenue? Don’t say it’s because revenue and advertising can’t be correlated.”

When I worked for a marketing agency, we would never dream of tying online ad prices to revenue that our clients closed. Probably the single biggest contributing factor is that the advertiser isn’t responsible for the competence of your salespeople. If each sale is 50% relationship and 50% lead generation, the advertiser would get dinged or rewarded based on how good the salesperson was.

In addition, there are a lot of online ads for enterprise software and other complex sales. For the complex sale, online advertisers cannot wait the 60, 90, or 180 days for your $500,000 sale to close. In addition, there are simply too many moving parts in the complex sale: e.g., if an ad delivers a click from a large state agency that gets 90% of the way through the sales process, then gets cut off due to a budget stalemate, that’s not the fault of the advertiser.

The flip side of CPM pricing, however, is delivering a batch of “hot leads” that are only hot because they’re a steaming pile of dung. Tying prices to CPM (cost per thousand page impressions) encourages online advertisers to attract a large number of people rather than attract a narrower, focused group of consumers who might actually buy that bazillion-dollar software package.

But this isn’t a concept that just happened with the advent of online ads. Pre-Web 2.0, internal marketing departments could be lured by the promise of quantity, not quality. Witness the vendor at a tradeshow who gives away an iPhone or a Wii, only to receive 2,000 business cards from people who just wanted the iPhone or Wii. Meanwhile, the real lead, the one who actually has the need and the budget, stops by the booth to see a demo and is turned off by the throngs of people filling out a lead sheet in order to enter the contest.

So the obvious answer is that online ads are priced by CPM because that’s really the only thing acceptable to the online advertiser’s business model.

For any company who hires an online advertiser, however, it is essential to think beyond the raw numbers to improve the quality of those thousand impressions. What type of user/consumer will see the ads? Will those people have the buying power to make a purchase? Run through the scenarios of the user experience in your head. How will you get those users from click-through to purchase? Is the line between start and finish clear? If not, fix the line or move the starting point.