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What Is Online Marketing? – Part 6 of 6: Online Advertising

May 31, 2006

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Last week, we covered participating in online discussions. This week, I’m going to give you a primer on the options for paid advertising online.

There are really three main types of online advertising – banners, email, and pay-per-click.

Banner Ads

Banner ads are the most obvious form of online advertising. They are the graphical ads on the tops, bottoms, and sides of web pages. The idea is that people interested in the product or service the banner is advertising will “click” on it for more information.

Generally, banners are sold on a basis of cost per thousand (CPM) impressions. So, a banner with a $10 CPM means that you get charged $10 for every 1000 times the banner is shown.

The click-thru rate, which is the percentage of clicks a particular banner ad might get, is averaging about .3% industry-wide (that is point three, as in less than 1%). So, that means for every 1000 times a banner is shown, on average, three people will click on it. This number varies wildly when looking at specific cases because of a number of factors, including the design of the banner, where it’s placed, and the number of times it’s shown to a person over a specific period of time.

A popular site might generate 1 million impressions in a month, for example. That means the site is serving out, collectively, a million copies of its pages to various web site visitors during the month. Each time the site shows a page to a visitor, it is an opportunity to to put a banner on the page. So, when you buy a banner ad on this site, you are buying part or all of these 1 million opportunities. If you buy all of these opportunities, your banner will always come up whenever anyone goes to a page on the site. If you buy just a part of these opportunities (which, because of expense, is usually the way it’s done), then your ad won’t come up every time, but only a certain percentage of the time. (This last bit is sometimes hard for a first-time advertiser to understand.)

Email Ads

Email advertising comes in two forms. The first one is known as direct emailing – meaning you have a list of email addresses, and your message alone gets sent out to everyone. The second is text ads – essentially the text equivalent of banner ads, usually embedded in a newsletter or other regularly scheduled mailing.

Prices for direct email advertising is usually set on a per address basis. For example, a list broker might charge 15 cents per address. So a list of 10,000 email addresses would cost you $1500. Prices for text ads in an email newsletter, or other mailing, are generally set on a per impression basis, just like banner ads.

In the case of direct email advertising, the lists of email addresses need to be compiled in a way known as “opt-in”. As you might suspect, opt-in means the receipients have gone through some sort of process to give their permission to email advertisements to them.

Frankly, direct email advertising is riddled with pitfalls and I wouldn’t advise getting involved unless you have extensive experience in it, or you hire someone with extensive experience.

There are legitimate companies that make a living selling access to lists of email addresses. Companies compile these lists in a variety of ways, but for it to be truly opt-in, the sign-up process has to be clear. In fact, the best lists are what are known as “double opt-in” – meaning the recipients have signed up, then responded to an email sent to the address they provided in order to confirm they want to be on the list. If the confirmation doesn’t come, they aren’t added to the list.

There are a whole host of companies, however, that sell lists of email addresses under the moniker of “opt-in” when in fact these companies have done nothing more that harvest addresses, unbeknownst to their owners, from various online sources. A clear tip-off you are dealing with such a company is if they actually give all the email addresses to you, rather than taking your message and distributing it to their list for you. A reputable company would never hand over its list to a third party because there is a great deal of work involved in compiling a real “opt-in” list.

Another pitfall of which you should be aware is that the CAN-SPAM Act, passed in 2003, makes it a Federal offense to send out email solicitations unless it’s done in a certain way. If you buy one of these lists and blast your message out to thousands of people without following the rules of the CAN-SPAM Act, you could have the Federal Trade Commission (FTC) after you.

But, even if you deal with a legitimate company and the list is really “opt-in”, there are several factors affecting the response you’ll get, such as: source of the list’s addresses, copy of the advertisement, time of day or week you pick to send the ad, and the number of advertisements preceding your ad. You really need to know what you are doing to optimize all these factors.

If you really want to get into email marketing, you are better off taking out an ad that’s placed within an established email newsletter. Or, start your own email newsletter by having people sign up at your web site.

Pay-Per-Click

This is really the online advertising method of choice for the beginner.

The idea behind pay-per-click is that you bid on keyword phrases in the search engines. When someone searches on a keyword phrase you’ve bid on, your ad pops up along with the search results. If you bid the most, your ad is listed first; bid the second most, your ad is listed second; third most, listed third, etc. Ads are in text, making them easy for the average person to create.

There are two major pay-per-click systems – Yahoo’s Overture and Google’s Adwords. There are lots of minor ones, too, but they probably won’t get you much in the way of results. Between Overture and Adwords, you are covering about 95% of the searches done online.

Google’s Adwords is a complicated system. Lots of variables and things happening behind the scenes are what determine the amount you’re ultimately charged. I wouldn’t recommend it for someone with no experience in pay-per-click advertising.

Conversely, Yahoo’s Overture is pretty straightforward. I’d recommend starting on that system.

The major difference is that, with Overture, it is clear what you are spending at any one moment. If the top spot is going for 15 cents and you bid 16 cents, you are now in the top spot. And you continue to pay 16 cents per click until someone outbids you – very straightforward.

With Google, though, the top spot is determined by the click through rate of the ad, as well as the maximum you are willing to bid. So it is actually possible in Google’s system to pay less than the competition, but get the top spot anyway. It is driven primarily by how good your ad copy is. But the downside of that system is that the actual price you pay per click is dynamically generated moment to moment. So, essentially, you don’t know what you are paying until you’ve paid it.

Google is so complicated, in my opinion, that you really need to read up on it before running any campaigns. Otherwise, you’ll blow through a lot of money quickly (I did, and I’ve bought and sold online advertising for 10 years). The best book on the market, in my opinion, is Andrew Goodman’s Winning Results with Google AdWords.

You want to be in position numbers 1, 2, or 3. Both Yahoo and Google syndicate their search results, and the advertising that goes with it, to other sites. But many of those sites only run the top 3 advertisers. Some go down to the top 5, but being in the top 3 will ensure you appear in most places.

Be sure the ad is descriptive. Use the search term in the ad itself. And make sure the keywords you pick are narrowly defined. “Abusive relationships”, for example, is better than “relationships”. “How to get out of an abusive relationship” is even better than both of those. If you aren’t specific, you’ll get a lot of “tire kickers” who click on your ad just to get more information, only to find out it wasn’t what they were looking for. If they click, you pay – regardless of how unqualified they are.

The Landing Page

Regardless of what form of online advertising you use, the ad itself is just the teaser designed to make prospects click for more information. The place prospects go after they click is called the “landing page,” and that is where the real selling happens.

The landing page should match the ad. If the ad mentions a specific product or service, then the landing page should have more information about that specific product or service.

The landing page should also have a clear call to action – a specific thing you want the prospect to do. Don’t muddle it with unrelated stuff.

Put yourself in the prospect’s shoes. Try to understand what they need to feel good about taking the next step. If what you are selling involves a complicated buying decision, then you need to give prospects enough information to take the next step.

In one campaign I designed for a safari company, the whole purpose of the campaign is to get the prospect to initiate some form of contact with the company. I asked the prospect to either call an 800 number, fill out a form to ask a specific question, or simply sign up to the company’s newsletter. By giving the prospects three different ways to engage the company, I was sure to get some response from them no matter where they were in the buying process.

A good resource for more information on landing pages, and increasing the conversion rate of sites in general, is the book Call To Action by Brian and Jeffrey Eisenberg.

Costs Of Making A Sale

A lot of beginners buy advertising with no clear understanding of what it is actually costing them to make a sale, known in the technical parlance as conversion costs.

If it costs you $100 to run an ad, and 10 people respond, then it is essentially costing you $10 per click. If your product costs less than $10, you are losing money even if 100% of the people buy (which never happens).

Before making any commitments, you should create benchmarks to help you understand if a particular ad campaign is making or losing you money.

Since I recommend pay-per-click advertising for beginners, I’m going to use that example in calculating a benchmark. You can use the same general method for banner and email advertising too.

Here’s the math – you have a book you are selling for $8.95, and buy a keyword for 20 cents a click, and for every 100 people that click, one person buys the book, you are losing money.

100 clicks x 20 cents = $20.00 to get that single buyer, who you sell an $8.95 product to. Gross loss: $8.95 – $20.00 = -$11.05

To make this situation work, you need do one or all of the following:

1.) find cheaper keywords to buy,
2.) raise the price of the book (get more money out of the buyers), and/or
3.) raise the conversion to 2% or more (get more buyers with the ad).

In Conclusion…

Well, there you have it – online advertising in a nutshell.

And we’ve come to the end if the series. Hard to believe it has been six weeks!

You now have the basic tools you need to conduct responsible, effective online marketing campaigns. Use what I’ve taught you wisely!

Articles In The Series:

Involved in Internet marketing since 1995 (when it officially became a profession), Richard Hoy advises on, and helps execute, Internet marketing efforts for solopreneurs and clients of digital marketing agencies. His current focus is search engine optimization for books on Amazon and for local businesses on Google.