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Comparing Apples and Oranges

Marketers pay an average of 54 cents per click for Google Ads, according to Majestic Research. The ad rate in the New York Times is around $1,000 per column inch, according to their rate card. Which is a better value?


This is the dilemma of every marketer today -- where to put the money. There are always more opportunities than my budget will cover. How can I determine which is more worthwhile? If I’m spending on both, how can I compare the returns from them against each other? Believe it or not, it is possible to put these radically different opportunities on the same footing.


The secret is to find a way of treating them as the same thing. 


Let’s quickly review what I pay for. The price for print advertising is based on two things -- circulation, and the amount of space I buy. The price for broadcast (TV and radio) advertising is based on the number of people listening, and the length of the ad. 


Online advertising has several pricing models. Google Ads are PPC, or Price per Click. In other words, I pay when someone clicks on my ad to go to my site. This is the most popular with advertisers. The other major form is CPM, or Cost per Impression. With CPM, I pay every time my ad is shown to a visitor (an “impression”). CPM is most common with online magazines, such as NYTimes.com. People coming from the print industry understand CPM, it’s what they’ve been selling in print -- a portion of a page (or screen) presented to a given number of people.


These models may look very different, yet they can be compared by looking at their response rate. The secret is to ignore the obvious differences. Let’s say my print ad gives the reader a telephone number to call, whereas my Google Ad links to my Web site. It doesn’t matter. I could compare the number of telephone calls against the number of visitors to my site but the answer won’t tell me which is a better value. I’ll get a much higher closure rate over the phone than from the Web site, because a human is always a better sales person than a Web site. Similarly, the click-through rate for Google Ads is often around 5 percent. But I’ll never get a 5 percent response rate from a print ad in a million years. It doesn’t matter. What matters is how many sales I get at the end of both processes, and how much they cost to acquire. Irrespective of source, what matters is the final customer acquisition cost.


In other words, I can compare different advertising outlets by working out their CPA (Cost Per Acquisition).


Let’s say I am spending the 54 cents per visitor in Google, which is the average. If my Web site’s sales performance is also average, I have a conversion rate of 2 percent. This means I acquire one visitor in 50. In this case my CPA from Google is 50 times 54c, or $27.00.


Meanwhile I take out a quarter-page ad in the New York Times, at $10,000, seen by 1 million people. I get a response rate of one per 5,000, which means I get 200 telephone calls. My sales team converts 50 percent of those into sales, so I get 100 sales for $10,000. This means my CPA is $100. This means my New York Times ad is four times more expensive than my Google Ad.


When I do comparisons of this nature, print is invariably more expensive than PPC, and broadcast even more so. However, what this form of analysis can’t measure is brand awareness. There is good evidence to suggest that brand awareness cannot be developed through Web advertising, whereas TV is almost purely about brand awareness. When was the last time you rushed to the phone or store after seeing a TV ad? 


You also need to consider the nature of the customer experience at the time of ad presentation. Offline media advertising, whether print or broadcast, involves presenting an ad to someone when they are doing something else. PPC ads in a search engine are about presenting an ad to them when they are looking for that type of product. This means I can’t compare outlet sources if I’m trying to develop brand awareness, only if I’m trying to directly generate responses. Similarly, search advertising is hopeless when it comes to launching new product categories. People have to know something exists before they will look for it on the Web. In order to compare offline and online channels, they need to have the same aim.


It’s tempting, but dangerous, to compare other parts of the sales process, such as initial response rates. How many people picked up the telephone in response to my flyer versus how many people clicked on the Google Ad? However, this is deceptive because the sales performance of a Web site is appalling when compared with a telephone sales operative. A telephone sales person can respond to the prospect’s objections as they occur, can anticipate, react to tone of voice, and so forth. All a Web site can do is present pre-designed text and hope for the best. Thus each telephone sales pitch is unique to each prospect, whereas the Web site says the same thing to everyone. The reason why both sales channels are comparable is that, though the success rates for telesales is much higher than the Web site, the cost of getting someone into the telesales channel is also much greater.


Making such comparisons requires that I can gather the data accurately in the first place. This requires I have structures in place to determine where people came from. Any decent print advertisement will include a URL as well as a telephone number. However, I need to be able to separate visits to the referred-by-print from those referred-by-online ads. The easiest way to do this is to have a URL which is only used in my print ads, and nowhere else. Conversely, my Web site should list my phone number. However, I need to be able to track telephone calls which started on the Web site. The way to do this is to have a telephone number that is only published on my site. This way I know any calls to that number commenced on the Web site. If I want to separate telephone calls triggered by online advertising, I need a system in my site that offers a unique phone number to people coming from online ads. This can be done with some programming that detects source and delivers the phone number accordingly, or it can be done by having a special site reserved for online advertising.


Once I start putting all these components into place, I may come to the sales structures which others are starting to arrive at. If I can cross-feed people between the Web and telesales, I have the chance to use both together. The Web is best at getting large numbers of qualified prospects at a low price, while the telephone offers the best closure rates. For many companies, the best strategy is to use online advertising to drive large numbers of people into the site at low cost, then get them to pick up the phone. In other words, initiate the sales process via the Internet, and close via the telephone.


In the final analysis, it doesn’t matter how you first made contact with the customer. The important thing is how much it costs to acquire that customer. You can compare all your advertising outlets, online or offline, by looking at the cost per acquisition. Once you start looking at each channel on the same basis, you may find that they complement each other, and the best strategy is to play to the strengths of them all.



Brandt Dainow is CEO of Think Metrics, creator of the InSite Web reporting system. Read full bio.

Brandt is an independent web analyst, researcher and academic.  As a web analyst, he specialises in building bespoke (or customised) web analytic reporting systems.  This can range from building a customised report format to creating an...

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Comments

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Commenter: Israel Lorenzana

2008, August 01

Thanks for the article. What is your take with ads at bottom of text messages?