Home > Features > How Much Should You Pay for a Click? Part 1 • Bookmark   • Newsletters   • Register Search Options

FEATURE

How Much Should You Pay for a Click? Part 1

How Much Should You Pay for a Click? Part 1

June 16, 2003
Text size: 
Get XBIZ News
XBIZ Research
Will virtual reality boost the paysite market?
Yes, it will soon
  39.66%
Yes, but in a few years
  36.87%
No
  23.46%
Out of 179 votes. Results based on votes submitted by members of XBIZ.net social network.

" We were basically giving $1 away for each visitor that came to the site. Not a winning business model. "

You have a web site ready for action. Your products, order tracking, credit card payment system, and fulfillment process are all in place. Now all you need is traffic! Many web entrepreneurs have learned that the magic nut to crack is attraction: get a steady flow of customers who explore your site and eventually purchase goods.

The overhead costs of most web businesses are minimal relative to brick and mortar stores. However, the variable marketing costs can over shadow sales revenues by orders of magnitudes. Unfortunately, unlike the saying in the movie Field of Dreams, “If you build it, they will not come!” Luckily, the industry has learned this lesson; some the hard way, and others in spite of the losers. Dot-coms are clearly not the darlings of the capital markets any longer; however, there is still money to be made!

If you plan to start a web business or already have one but are not sure how to increase traffic and make money at the same time, you should consider a science-driven approach.

How to Lose $500 in 12 Hours
One weekend, my business partner and I created an affiliate commerce site. The site comprised a list of links to other online retailers. People go to our site, pick a link to a jewelry store for example, buy something, and in turn we receive a commission from the sale. The process of creating the site, signing up the affiliate agreements, and turning it on was a cinch. The cost was virtually nothing. We, being new to this whole web business concept, thought we had an incredibly smart marketing idea: pay to have our site come up in an ad box on a major search engine (Google) every time someone searched on the word “gifts”. The word gifts is searched for 49,000 times per day! We figured we would have a good flow of visitors and the money would start rolling in. For certain, we would at least break even. We sunk $500 in one day and let it rip. Here’s what happened:

  • Our investment in Google - $ 500
  • Number of times our ad was displayed (impressions) - 36,964
  • Number of times people actually clicked on our ad when they saw it (click-throughs) - 429
  • Number of times a person visiting our site made a purchase - 10
  • Our total sales revenue - $ 77
  • Our total gross profit - $ (428)

The whole process took less than 12 hours. At least we learned a lesson quickly at a relatively low cost. Let’s look at this event from a slightly different perspective, putting the costs in terms of number of visitors:

  • Our investment in Google - $ 500
  • Number of times our ad was displayed (impressions) - 36,964
  • Number of times people actually clicked on our ad when they saw it (click-throughs) - 429
  • Ad cost per visitor - $ 1.17
  • Number of times a person visiting our site made a purchase - 10
  • Average sale per purchase - $ 7.70
  • Average revenue per visitor - $ 0.18
  • Average gross profit per visitor - $ (0.99)

We were basically giving $1 away for each visitor that came to the site. Not a winning business model. However, taking this information, we can assess which marketing techniques can work best for the business. Let’s add 2 additional critical data points to our table:

  • investment in Google - $ 500
  • Number of times our ad was displayed (impressions)- 36,964
  • Number of times people actually clicked on our ad when they saw it (click-throughs) - 429
  • Percentage people who clicked on our ad (click-through rate)- % 1.16
  • Ad cost per visitor - $ 1.17
  • Number of times a person visiting our site made a purchase - 10
  • Percentage of visitors who purchased something (conversion rate)-% 2.3
  • Average sale per purchase- $ 7.70
  • Average revenue per visitor- $ 0.18
  • Average gross profit per visitor- $ (0.99)

Running the Numbers
Putting this all together, you can create a formula for estimating the gross margin per visitor for a specific marketing campaign:

Average Gross Margin per Visitor = Average revenue per visitor - Advertising Cost per Visitor Advertising Cost per Visitor = Campaign Costs /(Impressions x Click-through rate)

Average revenue per visitor = Conversion rate x Average sale per purchase.

In Part 2, we'll put it all together and finalize our marketing model – stay tuned!


PROFILES & BIOS

NMG’s Megan Stokes Helps Brands Find New Revenue

NMG Management, which helps adult companies find new ways to increase revenue and brand exposure, has some of the industry’s most prominent studios listed as clients. From MetArt to Holly Randall... More »

Cam World: Chaturbate’s Ramona Flour Cultivates Community

Wreathed in a scarlet mane of silky flames, Ramona Flour is a mesmerizing Renaissance woman, her painterly figure gorgeously inked and her savvy intellect sharpened to a witty edge. Artistry pours forth... More »

Cam World: TheaForYou Hypnotizes Audiences on Stripchat

TheaForYou is an exotic mirage of heavenly dreams, dancing through streaming lights whenever she graces the web-cam on Stripchat. Shimmering golden hair crowns her adorable eyes like solar rays spun from... More »
XBIZ NEWSLETTERS
Stay informed of the latest industry developments. Get XBIZ newsletters delivered to your inbox. Subscribe today!
Enter email address:

* To manage existing subscriptions click here.






POPULAR PRODUCTS & SERVICES
Submit your press release to
multiple news outlets with 1 click.
Subscribe to RSS news feeds or
add free content to your website.
Access XBIZ news and articles
with your mobile device.
Subscribe to XBIZ World magazine, the industry's leading e-commerce trade publication, delivering in-depth coverage of the online, mobile and ancillary digital markets.

UPCOMING EVENTS

XBIZ.net Paysite Meetup

May 04 - May 04
Prague, Czech Republic

Eurowebtainment 2017

May 17 - May 20
Majorca, Spain

XBIZ Retreat

May 30 - Jun 03
Miami, Florida

XBIZ Miami 2017

May 30 - Jun 02
Miami, Florida
Everyday thousands of business professionals browse XBIZ's industry directory for quality products and services. Not listed yet? Your company could be losing potential new business. Submit your company today!
Use XBIZ RSS feeds to stay informed of the latest industry developments or as a content syndication tool for your website!