To me, it’s about Cost Per Positive Interaction with the brand.

Oh, I don’t know…

Why discount the value of non-targeted communications?

In order to have a meaningful one-to-one dialogue, you need to identify your participants.

Non-targeted communications are the very top of the funnel. You can learn a great deal about your marketing by exposing it to broad audiences. You can identify people you didn’t know would be interested in your marketing, get baseline information about an unknown audience, and start trending behavioral patterns of sites and other online properties. All necessary intelligence for doing a proper targeted marketing campaign.

Like anything else, non-targeted, CPM model advertising is critical to what we do.

Where I believe we come in is where we say “If you’re going to run out there with a broad campaign, let us find out as much as we can about whom you hit, the audience to whom you’re addressing, and something about the media/place in which you’re engaging...so that way we can properly (and effectively) address the people who show interest.”

People shouldn’t confuse proper targeted marketing with broadreach marketing...and you might argue that the CPM model doesn’t apply to targeted marketing...but there’s a place in the toolbox for each technique, provided you know when to use each of your tools.

I think that is the point—CPM is for broad based targeting where the ineraction is not diretc but part of a cumulative effect. It is a very importnat and useful metric for what it does and yes is part of eh tool box

CPM is like high school SAT results. They’re both easy to measure and compare, but not necessarily connected to whether the student will actually fulfill his real-world potential.

However, basing advertising fees solely on transactions (CPA) has its own serious flaws.

You’ve placed the guarantee of payment for the use of your resources into the hands of a third party.

Now, the advertiser may WANT to sell his product, but that doesn’t mean he CAN sell his product.

Ultimately, a happy client will come back for more (OK, admittedly and presumably based on reaching some predefined expectations on transactions).

Nevertheless, with affiliate marketing models the brokers and sites take all the risk on what is ultimately the advertiser’s ability to close, and not necessarily related to your own performance - assuming you’re bringing them the appropriate audiences in the first place.

Now, if transaction measurements were used to lock in advertisers to additional campaigns and campaign extensions - that would be an interesting and effective use of that tool.

"CPM because” that’s how the campaign objectives were set up. Marketing Directors mostly do set up objectives this way, and it’s a valid way to compare similar kinds of campaigns (especially with “day to day” thinking).

My favorite strategic metrics include increments from activity: eg, inferring ROI using changes to NPV, brand equity changes (selling more for same $s because the brand can do it now) and brand(s) value changes, but these happen too slowly to attribute to a single campaign. As metrics they are also hard to do with accuracy (with good data) and impossible with crap data.

But, for tactical metrics, cost per (’000) response and cost per (’000) conversion are immediately telling you a valid story. They also let you know where the roadbumps are.

However, client need to keep awareness beyond the immediate and do something systematic to measure brand dimensions, to know where any new sales are coming from (competitor, cannibalisation, or new consumer), and to understand reach by channel (and interactions between channels, etc) so the client doesn’t narrow their “conversation” to the cheap, narrow and loyal niches. Tom.

but should not the apples to apples be sales applied to cost—ROI?

ROI confuses a lot of marketing (and sales) departments. They don’t manage the “R” part very well. Should it be gross sales, sales margin, annualised return or single event return, based on LTV/NPV, etc. They often don’t handle the “I” part very well, either. Tactically, they are also messed up by the delays in closing sales - if they wait a bit longer, the ROI may go up as sales get closed. I personally prefer ROI (based on changes to LTV). A fast version (based on sales events in response) can use projected conversion rates TIMES campaign responses, and budgeted costs in place of actual costs. This looks like a simple “finance dept” metric. OTOH, CPM looks like a “sales dept” metric. Sales calcs multiply a whole lot of these “sales” metrics together to factor in incrementals and come up with margins. Finance kind of works backwards. They set targets and tell you what performance level they want you to reach. In an ideal situation, these people should go out for dinner together more often… ...or at least sample many fruits…

and hence the critical importance of setting the outcome goals up-front.

Maybe this topic is too big for a blog. The topic needs air, so blogging it is good.

There are plenty of books and papers out there about these kinds of metrics and how to use them. A major problem with most of the ones I’ve read is that more and more metrics keep getting invented. There is far less thought and depth of insights about why “good” metrics don’t find a good home, or get used naively.

Vendors might have a list of 50 metrics in their “solution” (aka tool). I even think there is one such tool out there now called “The Big Tool”!!!

Maybe it’s time to write the book that starts from outcome objects, and reasons backwards to choose and use the best metrics. [How many people would buy a book like that, I wonder]?

like that thinking—truth is we need to begin with the outcome—if we dont how do we know where we need to go?

We experimented with a client who approached us and told us his revenue on each sale was $X and his profit was $Y. His said from his experience that he had a consistent conversion rate of Z% from internet leads. We estimated the range his CTR rate would be in, and worked backwards with him to set a CPM rate and campaign model that would allow us both to profit.

Defining goals and expectations should always be done at the beginning of the campaign, but the real-world isn’t usually so black & white that it can be done so unambiguously that fees can and should be based around it.

How do you decide the real value of a lead for an organization simply trying to create buzz, or offering a public service? You can set a variety of target goals, but how would you accurately define or evaluate them in dollars?

And what about these even more ambiguous cases:

If the goal is only Qualified Leads, then who determines if a particular lead is qualified? 

And if an Unqualified Lead makes a purchase, what does that mean for the other Leads you categorized as Unqualified?

What happens if the Qualified Lead only buys 6 months downs the line - but then does 10 individual purchases?  (Do you get 10x in 6 months, or it lost to you forever?).

I’m sticking to my original proposition that goal-based measurements are great for convincing a client to run additional campaigns and for initially helping define the technical parameters of the campaign, but I wouldn’t want to base my revenue around something that is so potentially ambiguous, so open for dispute, and so ripe for misunderstandings and bad feelings.

and what about life time value....

CPA - dialogue vs CPM - monologue

LTV (or NPV) is a relationship word, along the customer/product(s) lifecycle. CPM is a campaigning word. Ideal targeting and market scoping should look at the value of relationships and then the ways to find, develop and care for them. But campaign objectives (in marketing departments) are often short term, tactical, and operations focus, so they want to be assessed by CPM type measures. This is partly a problem with how marketing KPIs get set up, and partly the status of marketing departments in orgs.

Second comment: LTV and NPV are not numbers. They are predictions which depend on how the relationship with the customer is managed into the future. The objective is to increase LTV, as well as invest where (ie, which customer cells, segments, touch points, etc) the cost of the marketing activity is justified by the CHANGE in LTV.

Third comment: By its very nature, LTV is an estimate. For individual customers, its a noisy estimate, and for coherent cells of customers is more precise, but still dependent on assumptions and data quality. Skeptics can point at this any time they like - but it’s a kind of skepticism like choosing to remain ignorant rather than have a useful guide.

Stepping back for a second. A site owner has a resource to rent with a definite market value. He’s already in the lucrative business of renting space, why would he switch and become a silent partner in someone else’s business (unless he thinks his space isn’t that valuable)?

So it’s then up to the broker to make the conversion between the CPM and CPA models.

And the broker stands to risk real loss from the exchange rate when (not if) he misses counting transactions.

What happens when the visitor doesn’t order on the internet, but calls up by phone, or orders only when they get home from work?  That’s how my parents shop on the internet, so I assume other people do the same. Those are unlogged sales that had trackable CPM dollar values.

And would the average advertiser really want to keep paying some third party money for merely supplying a lead (even within a limited defined lifetime)?

Unless he really wants to be in the affiliate business, does he need the headache and real extra cost of buying and integrating all those additional tracking and billing software modules, when all he really wants from the broker is a basic SLA?

And shouldn’t the advertiser then supply all his ad brokers with unlimited auditing access to his sales records for the lifetime of the deal (how else are you going to accurately report/measure/track sales after the cookie drops, and the customer is already in the system)?

And doesn’t Google have enough information about us, without access to our sales records too? 

CPM - Introductions for the purpose of Dialogue vs.  CPA – Eavesdropping on the Dialogues

Stephen raises introductions. This really is probably the most critical asset for a client. If the client can’t get introductions, everything else MUST run down hill. However… ...there are copious vendors (and sources) of introductions, so the other way to make money is managing the customer relationship/lifecycle (or ie, exploiting the dialogues). For introductions, the point is to find the introductions that will have high value, and on the relationship side it is about realising that value and not making mistakes. Is Wunderman about introductions, or realising value? Probably both, where appropriate. Tom (compulsive poster on this topic).

Compulsive dialouger.....LTV is not a flaky or soft or innacurate measure - we have forced short term metric focus because we now have teh opportunity to micro-manage campaigns—a good thing—but we have forgotten that life spans have increased.....LTV can inform soending; media spend; choice and offer—try it…

Don’t count me among the converted, but out of curiosity, I ran some numbers.

In the past, I spoke with a Store that also sold on the internet and only worked with the CPA/affiliate model. He claimed that he has affiliates that make thousands of dollars a month. On the other hand, a friend of mine gave then 500,000 impressions without a single sale.

He pays 3% per sale. Lifetime of a client is as long as you remain an affiliate.

Here are some assumptions on my part.

His average sale is $250 (my typical purchases from him were $200). A buyer will typically make 3 purchases (that’s what I did, but only one was over the internet, the other 2 were in-store).

As he lets anyone be an affiliate, let’s assume overall, it’s an untargeted campaign with an average .3% CTR with a 1% conversion rate on clicks (argue about that as much as you want). A sale over its lifetime is worth $22.50 to the Publisher. To get that client you need 33,333 impressions.

So per CPM he is effectively paying 67.5 Cents per CPM. That’s an incredible rate for the Store. Sucks to be an affiliate though!

In reality, I am going to assume that the few sites that are properly aligned with his products will do much better.

In fact, a site that reaches the right audience might get a 2% CTR and a 2% conversion rate. The publisher now only needs 2500 impression to make a deal, and now the Store is paying that specific publisher $9 per CPM.

Now that’s already a good deal for the publisher (Of course it raises a separate question, if a site is so well aligned, they can easily command those CPMs from the Store’s competitors without dealing with the risk of an affiliate program).

It also makes payment to the various Publishers - in relation to their direct effectiveness to the Store.

Anyway, it is betting, but perhaps an ad broker with targeting and the right set of sites might be able to pull a final $4-5 CPM out of this campaign. That’s not great, but it’s not bad either.

Of course, all this assumes a certain average deal size, a sufficiently large enough commission, repeat buys, and interest to buy the product over the internet. It also requires that the broker has capital up front, to front the campaign in case it doesn’t work out, or until the payouts add up.

This also won’t work (or at least make sense to work with it) for every type of product.

There is reason to assume that a broker might set up a conversion plan to make this profitable. But the question is, given enough deals, will you come out ahead in the end, or will you lose too often on some of the bets you’re placing.

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Having said all that, I learned something else from the Store. He was bragging to me that his Google PageRank was the highest possible (I just checked he only has an 8 out of 10).

This he claims is from all the links from all his affiliate sites (I’m sure he isn’t using “nofollow” in his code). I understood from the conversation that most of his Internet sales actually come from Google searches, not affiliates.

In short, not only are most of his affiliates effectively giving him free advertising, they are helping him push up his PageRank, and indirectly getting him more sales, to no benefit to themselves.

Stephen quotes some rates (clickthru at 0.3%, conversion at 1%), and then some better rates (2% and 2%). This is where management of the front end (acquisition?) comes in. Clearly some affiliates are working much better than others. Time for incentive pricing?

Any idea whether sales after the first one (of a typical 3, at $250 each) come via clickthrus, or is the customer lifecycle already established? Ie, is affiliate value about acquisition, or ongoing (or a combination)?

The Google PageRank should, and probably will become part of pricing. Tom.

That you can rich out of Cts is clear—look at Yahoo—As you get closer to teh deal and teh CPM goes up it again begs teh question if you have teh right allowable—Id pay way more to by-pass all the crap and get right to a customer—No?

An affiliate system doesn’t need incentive pricing. It’s inherent in the system. A properly aligned affiliate website will simply bring in more clicks, leads or sales, resulting in higher payouts. A misaligned affiliate website will get little or nothing.

That’s already more or less how we do things here when we run targeted campaign (still CPM based).

It seemed kind of obvious to me when we first started out, though we never actually heard of anyone else doing it our way.

I used sales/resales numbers based on my own purchasing experience with them. Their true sales numbers could be much higher or much lower. I don’t know the rest of the stats on them because I don’t work with them. Which brings me to the next point.

I would require complete statistical sales information from the client in order to determine if it an affiliate deal is worth even looking at. And you also need to carefully select what is considered an acquisition (a lead, a qualified lead, or an actual sale).

Also, PageRank can be notoriously inaccurate.

I just looked up the PR of a bunch of my Publishers. I know their sizes, their audiences, how they perform, and who reads and quotes them.

There was completely no connection between the size, reach, influence, and credibility (not to mention CTRs) of these websites and their PageRank. I now seriously wonder what Google is actually measuring, because if I were to base my decision solely on PageRank I would be putting my ads completely on the wrong sites.

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How do you even define the true value/price for an acquisition though?

We have a client who is complaining because he feels he didn’t get enough qualified leads, and as a result, feels his effective CPL (the CPA in this case) was way too high. (If I were to tell you the numbers, you would laugh).

To be on the safe side, I gave over the stats and background numbers to two market leaders in his industry with internet advertising experience for independent review.

The first market leader, who is currently my client, said the guy is nuts, he got great results and leads.

The other is not my client.

She is now negotiating to become my client, because she wants results and leads like that too.

Still, it’s up to them to close their leads, and I wouldn’t want to have to live/rely on their sales ability and certainly their sales cycle to pay my bills.