January 25, 2006Volume 5 Number 04 Issue 91
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Banner Ads

I am going to discuss the ins and outs of banner ads today. Are they worth your advertising dollars or are they a thing of the past?

When the Web first started, banners were all the rage. Today, they're pretty much passé. They're no longer a novelty and unless they're super-clever, users pretty much ignore them. Conversion rates have dropped through the floor and many advertisers have found other ways to push their products.

Whopping Great Banner Ad

And yet, almost every web site still contains a whopping great banner ad splashed along the top or running up the side. In part, that’s because they've become more sophisticated with better targeting and improved graphics. But in practice, banner ads tend to be used for one of two reasons: as a method of gaining / giving users through an affiliate program; or as a way of generating revenue — or traffic — through paid advertising.

Both these methods work to some extent, but the key is always to make sure the economics make sense. We'll look closely at the math in this chapter, but before we go on to talk about the math of banner ads — and how to tell whether your banner campaign is worthwhile — let’s just take a look at the terms involved. You're going to see these words whenever you join an affiliate program or take part in any other kind of on-line marketing scheme. You should definitely be familiar with them.


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Banner Glossary

  • Banner Ad — A graphic ad linked to an advertiser’s web site. These usually run across the top of the page but can also run up the page (“skyscrapers”). Banners are usually limited by size.
  • Banner Views — The number of times a banner is seen by users. This is usually the same as "page views," but counts the number of times the banner is actually downloaded rather than the number of times the page is downloaded. Some users click away before the banner finishes loading.
  • Clicks / Click Throughs — Banners are operated by clicking the cursor over them. Not too surprisingly these responses are called “clicks” or “click throughs.”
  • Click Through Rate (CTR) — The percentage of users who see the banner and click on it.
  • Conversion Rate — The percentage of people who visit your site and actually give you money. The higher the better!
  • Cookies — Small files placed on a user’s computer. They're used for many different reason, by both big and small sites throughout the Internet. Banner ads use them to make sure the user hasn't seen the banner recently, which banner brought them to the advertiser’s site, and even which adverts they've seen recently.
  • CPM — "Cost Per Mille." The amount you pay for every thousand times a banner is shown — the usual way of charging for banners.
  • Hits — The number of times a server receives a request for a Web page or an image. Not a great way to measure interest. One page can have lots of images and get lots of hits, even if it’s only seen once. Often, people will say "hits" when they really mean "page views" or "impressions."
  • Page Impressions or Page Views — The number of times a Web page has been requested by the server. Much more accurate than hits: each view is a potential customer looking at a page of your site. But not necessarily a different customer...
  • Unique Users — The people who download a Web page, counted by IP address. You want to bring lots of users to your site so that you can create a broad customer base. The same user clicking on a banner a dozen times could cost you money without increasing your sales. Most reputable sites will check the IP address of the person clicking on a link and only count it once in a 24-hour period. If a site doesn't do this, don't advertise with them.

Banner Economics

Business on-line, like business off-line, always boils down to math: the difference between cost and revenue. If your banner campaign is costing more than it’s earning, you won't be in business for very long. To figure out how your campaign is doing, you're going to need to know your Cost Per Mille, your Click Through Rate and your Conversion Rate. These are your basic tools. If you don't know them, find out!

As an example, let’s assume that your CPM is $20, your CTR is 1%, and your Conversion Rate is 4%. (So you're paying $20 every 1,000 times your banner is shown, it brings you 10 new users, and you make one sale for every 25 users the ad brings). The question you need to ask yourself is how much are you wasting on the 24 users who don't buy.

Cost per visitor = $20 / 10 = $2 So each visitor costs you $2, but you need 25 visitors to make one sale, so...

Cost per sale = $2 * 25 = $50 ...if your gross profit on each sale is less than $50, you're taking a loss.

That’s pretty simple, and as you can see, there’s not a lot of room to maneuver here. Margins are tight on banner advertising and that applies to both the site selling the advertising space and the webmaster buying it.

Other Measures of Success

Of course, hard cash isn't the only way to measure the success of a banner ad. One reason they're still popular is that they're a pretty effective branding tool. After all, advertisers spend millions on billboards without expecting motorists to drive straight through them and make a purchase! On the Web, those advertisers can even be reasonably sure that the people who see their ads will be interested in them. But branding costs money — lots of it — with no guarantee of results. It’s usually best left to those with really deep pockets.

My Banner Ads

I seldom use banner ads on my sites as I believe that I can better use the space for information for my readers. Those banner ads that I do use on my sites usually send users to my affiliate partners. I have not been overly impressed with the banner ads I have placed on other people’s sites and have no significant plans to use them again in the immediate future. If I could find a way to get banner ads that don't cost me anything, and I see some potential for sales occurring, I may be persuaded to change my mind *8>)


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Your Decision

If you do decide to purchase banner advertisements though, and if you have a very specific market in mind, make sure they are strategically placed — on sites where the traffic will most definitely be interested in your product or service. Find a site that suits exactly your specific product and you're going to be appealing directly to your target market.

That’s it for this week. As you can see, banner ads are not the guaranteed money making tools that they once were but they can still be used effectively if targeted properly. Is banner advertising for you? Only you can determine that.

Talk to you soon!

Jim Green

P.S. I have included a bonus article on Affiliate Programs. Click Here to read it.

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