Hit Counts And Advertising

By Bob McElwain
Posted Saturday, July 26, 2003

When you first open your new site, hits will be slow in coming (unless you are an expert at generating them). And sales will be correspondingly scarce. Even so, you need to be checking your stats and sales with care. The number that matters most to you is ...

The Value Of A Hit

By this, I mean, what is a hit worth to you? (By hit, I mean one unique visitor or user session.) Compute this number by dividing total sales amounts (gross profits) by the number of hits. That is, find the total earned for say a month. This includes your part of sales of products produced by others, commissions on sales, and so forth. Your stats will provide the number of unique hits.

For example, if you have a gross of $200 for the month, and 1000 hits, the value of a hit is 200/1000. Which is 0.20 or 20 cents. If gross was only $50, then this number is only 0.05 or 5 cents.

Moving Averages

With a mature site routinely generating hits, this number is not likely to vary markedly from month to month. Even so, a good plan is to include in your results a 3 (or 4) month moving average. For example, given Jan: $0.30, Feb: $0.20, and Mar: $0.10, add these three numbers and divide by 3. (30 + 20 + 10)/3 = 60/3 = 20.

The reason this helps is that looking only at the monthly data, the above looks like an ugly downtrend. The 3 month average eases that downer feeling. Equally important, it helps you keep from getting too excited about an apparent up trend.

Suppose the value for April jumps to $0.40. For the new average, January is excluded; you look at only the last three months. This gives (20 + 10 + 40)/3 = 70/3 = 23.33 which is roughly 23 cents. In considering 23 cents as opposed to 40 cents for the month, there is a more reserved view of the sudden jump.

I chose numbers here to make things easier to follow. Actual results for your site will look quite different. And since the computations, while simple, can be tedious and prone to error, most who take this sort of thing seriously use a spread sheet program, such as Excel.

Why These Numbers Matter

The value of a hit is fundamental to what you can afford to pay for advertising. And you'd like to stay a bit under this figure. If the ad produces only this value per hit, the campaign was a fizzle, for no profit was made. (The exception would be the value of new customers as subscribers to your newsletter, those who return to purchase other products, and so forth.)

There's a lot of trial and error in testing ads, but the ins and outs of it are off topic here. For our purpose, suppose you have a well tested ad that can be expected to generate 25 hits in 1000 impressions. If the value of a hit to you is 50 cents, then you can expect a gross of 25 x $0.50 or $12.50.

What this means is you can afford to pay up to $12.50 CPM (Cost per 1000 impressions) provided hits add to your subscriber list or returns for other products. If you expect only a one time sale, you probably will not want to pay more than $6.25 CPM, so that half of revenue is immediate profit.

With an established site, even given troublesome variations month to month, it is a fairly straightforward matter to decide what you can afford to pay for advertising. Things are different, though, for ...

New Or Small Sites

Initially you just don't have enough hits or sales to produce numbers that make any sense at all. There is likely to be large variations each month. Even so, it's best to begin this kind of tracking even when only getting started.

Probably the best approach is to forget about a 3 or 4 month moving average, and generate an average this month for all earlier months. Whatever your results, you can not afford to advertise until you have a tested ad and feel confident from the value of a hit the ad will produce profits. For a new site, unless you already know the advertising game, this may mean waiting a year or more before even giving advertising a try.

Getting Started With Advertising

Most find advertising in ezines to be the most effective approach on the Web. The trick is to find ezines directed at your target. Then test your response to an ad in the least expensive way. Given a poor or inadequate response, try another ezine. But given a good response, go for it. In theory, advertising that works can bring unlimited profits.

Ezine advertizing costs are often stated with a single price. To make your numbers work, convert this price to CPM. This also makes it easier to compare costs from ezine to ezine. For example, if the circulation of an ezine is 4000 and the cost of the ad is $20, you are paying $5 CPM.

Other Paths

I've haven't heard any recent reports of good success with banner advertising using the CPM model. Some are reporting success with the pay-per-click model, which means you pay only for clickthroughs to your site. This is essentially the same model used with the pay-per-click search engines such as the one at http//GoTo.Com. There are no tough decisions here. If the value of a hit to you is greater than what you must pay for a click to your site, go for it. If it's not, ignore these avenues until it is.

With an established site, several search engines, such as Google, offer some interesting possibilities I have not tested. Pricy, though, for new or small sites.

Directories

To submit a listing to Yahoo requires payment of $199. Regardless of the value of a hit to you, submit as soon as your site is sufficiently polished. Consider it a one time advertising cost, and don't look back. Yahoo may deliver as much as a third of search engine related traffic.

LookSmart is not such a sure thing. Also $199, they're asking too much, in my opinion. But I still recommend paying the fee. Again, it's a one time cost. Over time, a listing will pay for itself, and may ultimately do so many times over.

SNAP is another matter. They also ask for $199 for a listing in their "Top Sites" directory. I don't think it's worth it. And I have not heard others recommend it. But it is an option. Submit for free to their "Live Directory," then walk away.

DMOZ is a must. Submitting a listing is free. And if you find a second category into which your site fits well, a second submission about a month later works well.

So When Should An Advertising Campaign Be Launched?

As soon as the value of a hit and a tested ad will produce profits. Until this point is reached, advertising is a waste of money.

For a new or sluggish site, the way to go is to keep working at boosting your CR (Conversion Ratio). That is, continuously examine all elements in all paths leading to sales, in search of improvements that bring a higher CR. By increasing your CR, you increase the value of a hit. Ignore all thoughts of advertising until your CR is sufficient to produce a hit value high enough to cover the costs of placing ads.

But once this happens, go for it. All out.