When CPC and CPM Meet

DoubleClick recently released its benchmark figures for 2009. The overall Click-Through Rate (CTR) clocked in at a whopping 0.1%, which is comparable to the figure for 2008. For those of you not quick with a percentage, that means that for every 1,000 people who view an ad, one person clicks on it.  Click-Through Rates have been on the decline pretty much from their inception, starting at CTRs of 10% and 15% and drifting downward ever since. The fact that they have settled in around 0.1% may indicate that they have finally reached their low-water mark.

This figure is also significant because 1,000 is the rate that some publishers use to sell display advertising (Cost Per 1,000 Impressions or CPM).  It used to be that most CPMs charged by publishers were much higher than the cost per click, or CPC, (because click rates were higher than one in a thousand.)  Now that click rates have sunk to 0.1%, your CPM is your CPC. So if a publisher is using a CPM-based analog pricing model, and trying to charge a $50 CPM (because of their rich content and their valuable audience), you better be prepared to pay $50 a click. Conversely, if you are only willing to pay $10 a click and the publisher wants to charge $50 CPM, you best tell them to get real.

Not so un-coincidentally, Google recently decided to enter the display market. Google made its name in paid search by charging on a CPC basis and letting a free market-based bid model (theoretically) determine the CPC price. This created no real mystery for the advertiser, as they only pay for people clicking on their ads, and the bid model tells them what it will cost.  More of this kind of economic model will be a welcome entry to the display market. We should expect CPM-based publishers to start professing the brand message value of the display ads, and that it’s not all about clicks. Good luck with that one.

– Mike Reineck, Principal

Related articles

• CPM vs CPC: Which Is Better For Facebook Ads? Round 2 (allfacebook.com)
• CPM vs CPC: Which Should You Use For Facebook Ads? (allfacebook.com)
• The Performance Network (firstrate.co.nz)

The United States of Analytics Test

Everyone seems to agree these days that having a handle on the numbers helps you more effectively manage an activity. In my earlier life as a practicing CPA, I was amazed by how few people had a handle on their own personal analytics. They didn’t know the amount of their net-of-tax income; the amount of their annual household expenses; their debt-to-income ratio; or their marginal or effective income tax rates. Needless to say, the people who didn’t know these metrics tended to have expenses in excess of their revenue and ended up financing their lifestyle with a high debt-to-income ratio.

This causes me to reflect on whether the average taxpayer has a handle on the metrics of their own country, so let’s have a test to see how well you know your own country’s metrics before you enter the voting booth. (answers below)

1. GDP: What is the annual GDP of the USA? All measurement really starts here. We gauge our booms and recessions by how this number is growing (or shrinking). It shrank by 2.3% last year, and the private industry shrank a staggering 23% in investment spending. The good news is that the GDP has been growing the last couple of quarters, and we are still the big dog, as our GDP is three times the size of China’s (but they are gaining fast).
2. Annual Government Expenses: How much do the folks in Washington spend? This year it is projected to be a staggering 26% of GDP, one-fourth of our entire nation’s output (a record high).
3. Annual Government Revenue: Whoops! This figure is a lot less than what we spend. That generally spells trouble for individuals (or small nations like Greece). The gap between this and our expenses is called our annual deficit.
4. Annual Deficit: Ouch! It’s the biggest it has ever been, and it’s a whopping 9.7% of our annual GDP.  Expenses are 166% of our income.
5. Federal Debt: Yikes! I hope this has a teaser rate and is interest only. It is 89% of our annual GDP and six times our annual revenue. That is $41,000 for every man, woman, and child in the U.S. Can you say overleveraged?
6. Debt Held by Foreigners: Hmmmm… It is 23% of our GDP and more than our annual revenue. That can’t be good.
7. Unfunded Liability for Social Security and Medicare: If you were a private company doing this, ERISA would put you in the slammer and throw away the key. It is $130,000 for every man, woman, and child in the U.S. We have promised retirement pensions and health-care insurance to everyone, taxed them for it, and have no way in the world to pay for it.

Answers:

1. $14.5 trillion estimate for 2010
2. $3.5 trillion estimate for 2010
3. $2.1 trillion estimate for 2010
4. $1.4 trillion (you just need to be able to subtract to get this one right)
5. $12.9 trillion current estimate
6. $3.4 trillion current estimate
7. $39.2 trillion ($5.1 trillion for Social Security and $34.1trillion for Medicare)

So, how did you do? If you couldn’t answer these questions, you might want to consider my initial premise that it’s hard to manage an activity if you don’t pay attention to the metrics. If you want a handy URL to keep track of the figures, the U.S. Debt Clock has most of them.

Mike Reineck, Principal

It’s the Idea, Stupid.

For the first 70 years of the twentieth century, agencies were paid based on how much media they bought for clients. This imploded after the growth of television drove the cost of media (and consequently the amount they paid agencies) through the roof. So for the next 30 years, agencies got paid based on how many hours of service they gave their clients. This imploded after client-side consultants and procurement folks practically drove agencies out of business by process-engineering the costs down to nothing.

Problem with all this is that it has nothing to do with the core offering of an agency. What is that – Media? Not anymore. Services? Not really. Most clients hire agencies because they want help persuading prospective customers to buy more of their stuff. That generally requires a bright idea that gets effectively communicated to those prospective customers. So, do clients pay agencies based on how bright the idea is? Or how effectively it reaches the customer? Or if it helps sell more stuff? Nope.

A media transaction is a market-determined price, so it’s easy to value. An hour of time is easily measured by a clock. But, how is the brightness of an idea measured, or the effectiveness of communication? These are really fuzzy, non-touchable things to measure. In the land of lawyers they’re called “intellectual property,” and payments for them are generally determined through royalties and licenses.

Underlying the license and royalty are the basic concepts of “Use” and “Value.” If intellectual property has value, it probably is going to be used a bunch. For example, Microsoft Office creates a lot of value to a personal computer. I am using it now to write and post this blog. Our enterprise decided to use it a bunch by loading a version on every computer in the agency.  Even though the disc it came on only cost a few cents, we paid a couple hundred bucks for each license on each computer. The program had value; we used it a bunch. We paid Microsoft accordingly. Our procurement people don’t pay Microsoft based on how many hours their programmers spent developing it, or on how many bytes of media the program occupied on the disc. A similar use and value license is employed in the music, publishing, or art world. Back here in advertising, though, we are a little slow on the uptake.

Despite the difficulty of measurement, agencies and clients need to move to a compensation model tied to “value and use.” It more closely links to what we do and what clients want from us. Most every idea gets embodied into some kind of material (an ad, a banner, content, SWAG, etc.). Most of these materials get used (tv, radio, internet, events). Generally speaking, the better the idea the more it gets used.

The payment system should deliver money to the agency based on the idea’s use and the value it creates, even if the client is still using the material and the Agency is not providing services. Why? Because the idea is still producing value to that client and they are using it. In a Darwinian Adam Smith-type system, this would ultimately lead to good ideas and the agencies that produce them flourishing, while bad ideas and their agencies go the way of the Edsel. Isn’t that the most efficient market mechanism?

At our agency, we have spent a long decade trying to transform our compensation systems to ones based on use and value. In the long run, it’s the only win-win for us and our clients. It involves us identifying ideas, tracking their use, and putting skin in the game based on whether they produce value or not for our clients. Last year 25 percent of our revenue came from intellectual property payments. The AAAA’s met in California last week to discuss “transforming” our industry. Perhaps the only thing that needs to be transformed is how we get paid. It’s the idea, Stupid.

– Mike Reineck, Principal

Use ROI Scorecards to Ensure Success in Marketing High-Involvement Brands

During a recession everyone hops on the ROI bandwagon as marketing dollars are scarce. As soon as the good times return and the marketing floodgates open, most marketers slide it to the back burner. However, for high-involvement brands ROI analysis is mandatory – in good times and bad times. At Kilgannon, we use a scorecard to make ROI analysis relevant, easily understood, and actionable.

But let’s start with what we mean by a high-involvement brand (HIB). This is a brand that has a long sales cycle and the customer perceives some risk with the purchase. It is the opposite of a consumer packaged-goods impulse purchase. Because of the long sales cycle, marketing investments have a long gestation period, sometimes more than a year. It is highly risky for a marketer to wait until the end of a sales cycle to evaluate the marketing spend. This is why milestones are important — to make sure the marketing stays on track.

Our clients have told us that the scorecard we’ve created has proven to be invaluable. For HIBs, the scorecard is like a breadcrumb trail that leads from the marketing activity to the ultimate sale. This process enables a marketer to see the contributions of each phase of marketing activity. In the early stages of the sales cycle this involves measuring the effectiveness of building brand awareness and attitude.

In the middle stages of the sales cycle, customers are beginning to shop for information about the product. This stage is one of the key differences between HIBs and consumer packaged goods. Since HIBs entail more risk, customers go through a research phase where they shop and learn more about the product before making their purchase decision.

Obtaining metrics on product research activity and how it interacts with your brand is essential to understand your ROI. Web analytics, search results, store traffic, call activity, requests for information, and other lead generation metrics are examples of the type of information that fills the middle stages of the scorecard.

The final area encompasses the more traditional financial metrics, such as sales revenue, market share, share of wallet, and willingness to recommend.

By consolidating all these metrics into one scorecard and trending the results, a marketer can monitor his marketing activities in the short term, while achieving his sales goals in the long term. We encourage every marketer of HIBs to use a scorecard so they can be sure their spend is as efficient as possible.

Sample Scorecard for Widget, Inc.

Six Meaningful Metrics in Social Media

Developing a meaningful ROI analysis has always been tricky in marketing. Social Media is proving to be even trickier. To start with, the objectives of a social media effort may be even less sales-focused than those of an advertising campaign. The objectives may be much simpler — to monitor conversations about your brand, to attempt to influence people, or to energize influencers about your brand. You could be trying to improve the responsiveness of your CRM activities.

In the analog world social networks existed and people had conversations about our brands. The difference was we rarely knew what went on or what was said. Once these activities moved online and people checked “I agree” on the terms and conditions to their social media, the veil was lifted and a digital footprint was left that yielded a dizzying array of conversational data.

As you begin to participate in the conversation, how can a business create a meaningful framework in which to monitor the results of your efforts? For starters, you need a clear strategy for what you intend to accomplish and a clear definition of what will constitute measurable success.

Listed below are some rough outlines of social media strategies and metrics for them:

1. Listening: In the analog world we called this audience research. At the most basic level we are gathering raw counts. How many people in your target audience are out there talking about your organization? How often are your competitors mentioned? Number of posts, fans, followers, and tags provide possible metrics for gauging this dimension. If people are mentioning the brand, they are aware of it, and awareness is an important dimension of brand value.

2. Sentiment: What is the tenor of the conversation about your brand? Is it positive, negative, or neutral? Are the people talking fans of your brand in a group? In the analog world we called this “attitude,” and it was a deeper dimension of the brand. There are several free tools on the Web that will gauge the sentiment of postings on your brand. If someone has built a Web site with http://www.yourbrandsucks.com/, chances are there is some bad sentiment out there.

3. Influencing: Are you creating evangelists for your brand? How many people are forwarding positive content? How many people are following and re-tweeting? How many tags and links are being added?

4. Reviews and Ratings: This starts to enter into the realm of CRM. Are current users of your product ambassadors? Are they detractors? Are they silent? Monitoring the reviews and tracking positive versus negative posts can give you an online version of Net Promoter Score.

5. Engagement: Did they link to your site? Are they creating user-generated content about your brand? Is it going viral? Are they contacting us? This is starting to enter the world of business metrics, as we are now creating leads.

6. Sales: If you have a real visionary social media campaign, is all the above activity leading to increased sales on your Web site? Can you track back sales to any of the above activities?

If you have gotten this far, you are in the realm of ROI. Now it’s time to ascertain the value of each of these activities and associated costs. When we leverage these figures, what kind of ROI figure does it produce?

Congratulations! You have created a Social Media ROI framework.