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August 1999
Beyond CPM& & Towards the law of
Cost of Customer Acquisition
By
Marc Phillips A few years ago, I remember
insisting that online media sales representatives did not use the term hits in their selling pitches to
unsuspecting advertising agencies. Today, Cost Per Thousand page impressions (CPM) is the entrenched metric for selling online advertisements. The average CPM in Australia ranges
between $40 and $50. Yet there have been quite a few innovative beyond the banner advertisement deals
done in the past 12 months in Singapore and Asia Pacific. The biggest question posed by
the smarter Singaporean online media selling agencies when pitching for
business is How much is the cost of
customer acquisition? By that we mean what does it cost to get an
Internet user to either register or purchase from your website? With
CPM. s falling in some cases in the USA to
as low as $US 7 per 1000 people . this is a rare case as average CPM. s in
the USA are US$35 - who see the advertisement, advertisers are pressuring
media conglomerates that have vast unused inventory levels to do deals on an
either cost per lead or cost per transaction basis. Cost Per
Lead (CPL) is
where an advertiser pays for the percentage of people who not only see the
banner ad but click on it, thus being sent to a destination website that you
have linked the banner ad to. A $45 CPM advertising campaign at a 1% CPL
would see each visitor to your site costs you $4.50. Depending on your media
buy, you can expect a click through rate at 2%-3% but much more for ensuring
your advertisement is in keeping with the environment of an online property. Naturally, the debate has
raged about bad creative being responsible for failed campaigns on a cost per
lead basis, so be careful when negotiating the media buy to ensure that your
banner advertisement have the 5 critical success elements. Cost Per Transaction (CPT) is paying
based on the
percentage of visitors to a website who actually purchase something from your
website. Buying
10,000 impressions at $45 CPM would cost you $4,500 which if you negotiated a
cost per transaction of $3.00 and had a 1% conversion rate from a 10,000
banner advertisements, then those 100 online buyers would cost you $3,000.
Thus the customer
acquisition cost is $3 per unit. Depending on how the
organisation wishes to penetrate the market, they may undertake a loss leader
to acquire customer knowing that it costs a lot more to retain them. Customer
Retention Strategies are raging throughout the USA with organisations like
NetPerceptions (www.netperceptions.com) and Firefly (www.firefly.com) assisting online
merchants compete on cost metrics. After being in Singapore last
week and conducting various meetings with those in the know of online
advertising I noted that Singaporeans are increasingly evaluating the success
of their campaigns in cost per customer. In a recent study conducted by
artuframe.com the Cost of Acquisition was resulted from an internal benchmark
study: Cost of Acquisition Comparison
Source: www.nua.ie As the CPL and CTR models are
often employed by search engines, readers of this column would be wise to
ensure that their websites can lower the cost of customer acquisition by have
superior search engine positioning. This is becoming a discipline in itself.
At least one Australian bank has a part time person that skilfully ensures
that search engine results return this bank more often at the tops of the
results page than their competitors. Check out WebPosition http://www.webposition.com
to track where your website is within the search engines. Rumour has it that some deals are being done with companies selling their corporate Intranet website space to providers. If you. ve got an Intranet with thousands of employees, imagine selling exclusive space on a range of services from recruitment to cars, to banking services. The list goes on as does the web, another day - another new way. For further information contact APT Strategies at info@aptstrategies.com.au |