Moving to cost per action advertising

In the first article in this series, I discussed switching from CPM to CPC campaigns (see that article for an explanation of these terms). In this second article, I’ll go one step further than just getting paid for clicks, by introducing conversion tracking.

Advertisers don’t buy a campaign because they like the site’s publisher. Their business goal is to increase sales. While there is a place for just raising brand awareness, ultimately it’s all about bringing in potential buyers, presenting them an attractive offer for a product or service, and completing the transaction.

In the past, publishers often found it easy to sell campaigns based on monthly tenancy or CPM (a fixed amount per thousand impressions). With budgets shrinking, advertisers find these deals are the easiest to cancel. That’s because there is no direct and measurable correlation between the money invested and the resulting sales. The alternative I presented in my previous article was to offer a campaign based on a price per click instead of a fee for the ad impressions.

In some scenarios, offering a cost per click campaign may not convince the advertiser, for various reasons. They might be concerned about click fraud, they might not have the metrics telling about their effectiveness turning site visitors into buyers, or their sales value per buyer might vary wildly. In those cases it’s hard to agree on a reasonable price for a click.

The beauty of online advertising is that everything is measurable. That’s a strong contrast with advertising in traditional media (print, radio, TV, outdoor), where it’s hard to find out what the exact effect of the ad is. If the publisher has a modern online ad management system like OpenX, ad impressions and ad clicks can be counted and reported. In addition, these advertising servers can also count something called a conversion.

For an advertiser, there can be several positive outcomes when someone visits their website. The visitor might submit a contact form, sign up for a newsletter, request a quote or buy a product or service, just to name a few examples. All of these have in common that the visitor changed into much more than just a visitor, she was converted into a contact or client. The publisher can offer to help measure these conversions, and have them link back to the initial ad impression and click that started the process. That will give both the publisher and the advertiser a very clear insight into the effectiveness of the ad campaign.

The ad server will report the number of ad impressions, the number of clicks, and the ‘click through ratio’ (CTR). That’s the number of clicks expressed as a percentage of the number of impressions. It will also be able to report the number of conversions. The financial compensation that the publisher and the advertiser have assigned to a conversion will be shown in the report as well.
Being able to offer an advertiser a campaign that’s going to be paid on the basis of real results will probably give the publisher a competitive advantage over other publishers. It shows real interest and understanding in the business needs of advertisers. And when a modern ad server (like OpenX) is being used, the ability to measure conversions takes hardly any effort from the advertiser.

It will take a bit of negotiating, obviously, to come to an agreement on the financial value of a conversion. For the advertiser, the value of a sale is much higher than the benefit of having a potential buyer submitting a contact form. But it will definitely be an advantage that the publisher is able to offer easy measurements of conversions. When the advertiser is a small business with a relatively simple website, they might not have that ability themselves but welcome the opportunity to use it.

In the next article in this series I’m going to discuss how conversions can be measured and valued.