Are You Being Fooled By Your Advertising Results?

By Bob McElwain
Posted Sunday, April 20, 2003

You may work hard at tracking traffic. You may calculate a CR (Conversion Ratio) as a percentage, maybe accurate to two decimal places. And track several.

For example, you might track hits on the home page to clicks on a sales pitch. Then from this, to the order form. And finally from the order form to actual sales.

The Value Of A Hit

Whether or not you're into paid advertising yet, you are probably selling your own stuff in your newsletter. And, of course, on your site, often through the home page. So you probably have computed the value of a hit to you.

This is how most get started in thinking about and planning an advertising campaign. For it costs you only your time to place ad content in your newsletter or on your site. Do the math right, and the experience will bring good numbers to guide your thinking when you get to a paid-for ad campaign.

Problems With CR

Suppose you get 1000 hits on your home page. Now assume 10% (unlikely!) click to your sales pitch for your fancy widget. That's 100. If the CR from your sales pitch to the order form is 2%, 2 visitors will make it this far. If you're doing things right, something like 50% will complete the order form and thus finalize a sale. So you've got one sale in 1000 hits. That's 0.1%

What's Wrong With These Numbers?

There's not enough data. The results are so soft you'd do as well guessing. And at least in the above, there is no consideration for hits coming from ads in your newsletter.

Without a scheme in place to track the source of hits to your sales pitch, even as simple as duplicated pages, you still don't know whether all the hits are coming from your newsletter, all from the home page, or an unknown mix between the two.

Problems With The Value Of A Hit

Lots of webmasters have only a guess at to what it might be. And even if it is based upon carefully tracked data, results can be worthless. They will be, given data on CR as soft as the hypothetical example above.

So What's A Person To Do?

Until you are getting hits in the 1000s every day, it will remain difficult to impossible to accurately compute CRs and the value of a hit. Your best bet is to keep tracking CRs as possible. But for the value of a hit, try this.

Hunt up your total net income for your last fiscal year. And the total unique hits on the site. When you divide net by total hits, you'll have a pretty good number.

Doing The Math

In figuring net, be sure you take the after-tax number. If you have a full time job, be sure to compute taxes paid specifically for your business.

For example, if your taxable net was $9000 last year, here in the US at least, your friendly Uncle Sam probably took $3000, or even more, in taxes on the $9000. So your true net on the business is $6000 or less.

To put this another way, you may have paid 15% on your total income, including that from your business. But you paid a much higher percentage on that $9000 from your business. So figure how much you would have paid without the business income. Then subtract this from the total actually paid.

Why The Value Of A Hit Matters

I meet lots of people who fail to accurately compute their after-tax net. It can result in poor advertising decisions that are costly. For example, given $9000 as suggested above, a computed value of a hit of $0.09 using this net is wrong. It's likely closer to $0.06 if you're working your business only part time.

In such a case, you are really taking a chance paying 5 cents per hit, about half the 9 cents computed. The better plan would be to pay a maximum of 3 cents.

Why Risking Half The Value Of A Hit Works Best

Assume the value of a hit to you is 6 cents. If so, then the estimated cost of an ad campaign should not exceed 3 cents per hit. The reason for this is again soft data.

In all cases, your ads and sales pitch need to be pointed specifically at your best prospects. Given this, there will come a time when you feel reasonably confident hits on your site and from your newsletter are coming from pretty much the same sorts of people.

As you turn to advertising, this is not a good assumption to make initially. You may draw a CR higher or lower than what you feel is true of your site.

What you want to avoid is a cash loss when the CR, for whatever reason, is lower than expected. Thus leave yourself sufficient slack when getting started.

Testing, tracking, and time will show what the CR from your ads is, compared to those from your site and newsletter. And at some point, you may have sufficient data to let the CR for the sales pitch stand on its own. That is, you may be able to safely assume regardless of the source of the hit, it is sufficiently targeted so that the CR will hold at least reasonably close.

Later You Can Safely Risk More

Even though you're not drawing hits in the 1000s, your data will lose its softness over time. With a couple years of data, you're on much firmer ground, regardless of the total number of hits.

In such a position, you can risk more on advertising. In fact professional marketers are often content with a 25% return. That is, they are willing to spend $80,000 on a campaign bringing $20,000 net from additional sales.

In like fashion, you may reach a point at which given 6 cents as the value of a hit, you are willing to risk 5 cents per hit from an ad.

This can work great when visitors take alternate actions you can't track as easily, such as bookmarking your site, subscribing to your newsletter, accepting your offer of a free report, and so forth. All of which can bring a return visit and a sale, even if not the one you were pushing with the campaign.

If You Have No Profits, Don't Despair

If you are just getting started or are still struggling with a site not performing as you would like, you may be running your business at a loss. So the only value of a hit you can compute is negative. In a sense, every hit is costing you money.

Even if you're in this fix, consider advertising. First, of course, make sure your site is as sharp as it can be. In particular, be sure all paths to sales are at top of form. Rewriting a sales pitch can do wonders.

But do take a shot at http//FindWhat.com. Among pay-per-click search engines, it doesn't deliver near the hits http//Overture.com does. Still, it's only $25 to sign up. If you bid only 1 cent per keyword phrase, this amounts to 2500 hits before you owe more.

If nothing else, you'll get a more solid handle on CR. (Tip: Bid as many keyword phrases as you can think of. A thousand even. For you are only charged when your link is clicked.)

Next, go to http//DirectoryOfEzines.com. Ezines are listed by category. Find a couple related to your target. Subscribe for a time maybe. Then try a couple of $40 ads every other month or so.

The above strategy may cost you money, but you'll be learning a heck of a lot. Knowing a bit more about advertising in ezines and with the pay-per-clicks will at some point begin to bring the profits you want.

Advertising Makes The Difference

Search engines, link swaps, and so forth can only bring part of the traffic most sites need. Likely you will need to advertise to meet your profit objectives.

Make sure your ads attract true potential customers. And be sure you track CR closely. Also make certain the value of a hit to you is computed with after-tax net.

Even if you never get up to 1000s of hits per day, your confidence in your data will increase over time. You can then expand into large advertising campaigns. These are what generate true profits.

But to do so prematurely, can be costly. In fact your campaign may seem a huge success when you check only sales. But an honest look at costs can reveal a considerable loss. Avoid such risk by waiting until you have accurate data, particularly as to the value of a hit to you.