This article was written by Ted Dhanik
The cost to advertise depends on many different factors, like targeting or placement. In general, the more you target the more you can expect to pay a premium, mostly because you’re shrinking the potential inventory you have to choose from and being highly selective. Targeting saves you money and could potentially increase the conversion rate of your display advertising, but you need to be able to properly estimate the costs associated with it before you begin a campaign.
Calculate Costs
CPM measures the cost of one thousand impressions of an ad. CPM is a metric that is frequently used in banner advertising to charge advertisers for space on a website. The goal of the advertiser is to increase the rate of conversion, which lowers the cost per sale/lead. In order to estimate the true cost of your campaign, and your potential return, you need to first determine how many page views you expect to receive. This is done using estimations from the network you are bidding on. Set your total bid and look at the estimated number of impressions you expect to receive, then divide that number by 1000. Take that number and multiply it by the expected CPM to get the true cost. If the CPM is $5, and you expect to earn 100,000 impressions, your true cost would be $500.
Cost=CPM x (number of impressions/1000)$5 x (100,000/1000)=$500
Cost per click is calculated based on the amount of clicks you intend on receiving, so it uses slightly different metrics to calculate value. You need to know the value of the click, then divide that by the potential clicks your campaign is likely to receive. Most banner advertising networks have some kind of gauge that gives you a rough idea of how much traffic you could potentially receive. Estimate that number on the high side and you will always have enough in your budget for the coming month.
Costs=CPC x Number of Clicks
Conversion Rate
The conversion rate is not a set mathematical formula, rather an educated guess based on the data you have before you. You should know your CPC or CPM by now, which does help calculate the rate you can expect on your investment. Still, your campaign may receive more or less clicks than what your model shows. Once you have data rolling in, you can measure the number of people who took action against the amount of clicks the ad received. Then multiply that number by 100 to get your conversion rate as a percentage.
Final Thoughts
A certain amount of math is essential for reading and understanding your campaigns. A spreadsheet that is programmed with these formulas will help you get the job done much faster, and give you historical data you can refer to when you want to know what works best.
Bio: Ted Dhanik is the co-founder of engage:BDR. As a direct marketing professional, Ted Dhanik has over fifteen years of experience in the field of business development. Find out how to improve your campaign’s conversions by visiting Ted Dhanik online.
