I’m not sure if it’s the real estate downturn, but my phone has been blowing up with online advertising vendors lately. I monitor my advertising revenue very closely, so I ask a lot of questions when talking with their salespeople.
Salespeople like to throw around big numbers to entice you to buy, so it’s important to ask for the proper metrics when analyzing different potential advertising sources.
Here’s a breakdown of what you should measure, and what to ask:
1) ROI (Return on Investment) is the bottom line number that you need to use after you have given an advertising source long enough to perform.
ROI is simply how much you’ve earned on an advertising source divided by how much you’ve spent. So, if you’ve earned one $6000 commission from Website A, and spent $2000 advertising there, your ROI is 3:1. You’ve earned $3 for every $1 you spent. Most advertising sources won’t track their customers’ ROI because there are so many “real world” variables that can create different results for different buyers – predominantly how well each customer can convert.
2) Conversion Rate is the number of leads you get per click.
If you have different types of leads (contact requests, registrations, property info requests) then it’s best to track the bottom line conversion rate, and then crunch it down to conversion rate for each lead type. So, if you get 100 visitors in one month from a traffic source, and you get 5 registrations, 2 contact requests, and 3 property info requests, then your conversion rates are as follows: 10% conversion rate, 5% registration rate, 3% property info rate, and 2% contact request rate. Some advertising sources will tell you what conversion rate to expect, and some will have no idea. The higher conversion rate, the more valuable the traffic source. You can crunch your conversion rate to cost per lead. If you spent $100 on the traffic we just described, then you spent $10 per lead.
3) CPC (Cost Per Click) is the dollar amount you spend for each visitor.
Many traffic sources (including Google and HomeGain’s BuyerLink product) will sell you clicks or “visits” — you don’t pay unless you get the traffic. Some advertising sources won’t, so you will have to track this figure on your own (which is easy to do with Google Analytics.)
4) CPM (Cost per Impression) is the dollar amount you spend each time a potential visitor sees your ad on the advertising source’s site.
Some traffic providers will sell you traffic based on impressions, and then it’s your job to tweak your ad until it drives the most traffic. This can be beneficial if you can buy the impressions cheaply, and then create an ad that performs very well. It’s always important to crunch down impressions to cost per click (and then ultimately cost per lead & ROI) after you have a couple of months of data to look at. Some vendors will give you a “range” of impressions — when they want to throw around big numbers. Ask them what their average clickthrough rate is, and then multiply the impressions by that number to gauge what you can expect in the way of traffic, and ultimately CPC.