Ads And Affiliate Programs, The When And The Why

I just read an old article that talked about why Myspace’s effective CPM is $0.10 and it’s mainly due to poor usability resulting in too many unnecessary page views.

I recently designed a website which has a similar nature. It would generate a lot of page views per visit. However, in my case, it’s more to do with that particular application requiring such a user interface than the desire to be the Internet’s top 10 destinations (heck, I would be happy if I get to be within 100k). Right now I don’t have advertising or affiliate ads on the website. I want to wait till I get a good page rank and traffic before I start thinking about the revenue.

However, I think I have an advice for people who are in a similar situation. When you have a lot more page views than visitors, then the best thing to do is to have Ads only on a few crucial pages that almost every unique visitor visits (typically the homepage and a few more pages). That too, from your top performing Ad network. In the remaining pages, which are likely to be plenty, try generating revenue through your secondary ad network and also using Affiliate programs. With affiliate programs, no one really cares about CPM. As long as you generate a lead that resulted in an action, you get paid. With this strategy, your ad network won’t feel that your website is generating very poor CTR (click-through-rate) and hence the quality of ads served on your website will continue to be better (I believe, some ad networks are tweaking the ads they display based on the CTR since they want to optimize their revenue and the exposure to their advertisers as well).

A CPA (cost-per-action) rate is far more than CPC (cost-per-click) and that’s understandable. For every N number of clicks that you generate, only a small percent of those clicks might actually end up in an action such as placing an order or registering for a subscription. Since the advertiser is paying only when there is an action and not when there is a click to his/her site, the advertiser is ready to pay more for the action.

So, if you assume 10% of your web pages fall under the top-tier category and the remaining 90% generate mainly page visits and not unique visitors, you can hope to make most of your ad revenue from the 10% of the web pages and most of your affiliate income from the remaining 90% web pages. Affiliate programs are like CPA, they only pay you when the visitor takes an action, typically buying a product or ordering for a service.

Your revenue will then be

10%*CTR*CPC + 90%*CTR*CR*CPA

where CTR = click-through-rate, CPC = cost-per-click, CR = conversion rate (on the target website, so it’s important to pick the right affiliate program that gives you a good conversion rate) and CPA = cost-per-action. If 1 in 45 clicks convert and the CPA is 5 times the CPC, then the affiliate program revenue will be same as your ad revenue without a perceived poor conversion rate on your website by your Ad network.