Sight Revenue: 759776

Questions:

The learning objectives of this assignments are understanding the different pricing models
of online advertising (CPM, CPC, CPA), learn how to do basic ad revenue calculations and
to make estimations on figures such as CTR, CPM, CPC and CPA.
In this assignment your task is to estimate how much ad revenue a Finnish lifestyle
blog might make in a month.
We make the following assumptions:
● Subjects of the blog are travel (50 %) and fashion (50 %)
● Blog has 25 000 unique visitors per week
● The blog operates in Finland
We take these numbers are given:
● Each unique visitor visits 4 pages for a total of 100 000 pages served per week
● For CPM ads, % inventory served is 50 %
● For CPC ad and affiliate commission, % inventory served is 100 %
We will assume that the blog will earn money by:
● CPM-based banner ads
● CPA-based affiliate links
● CPC-based contextual text ads
You will return a Word file (length 1-2 pages). In this file there will be:
● Your answer to the main question (estimated revenue in euros per month)
● A table with your calculations
● A short explanation on how you arrived to your estimates
● Sources
First, make estimates on revenue from display advertising:
1. Estimate the CPM of this site in euros. The average CPM in USA is around 2-3
dollars Is it lower in Finland? Why? Does the subject of this blog (travel and fashion)
have higher CPM than average? Do some searches on Google and give your team’s
best guess and the reasoning behind this guess.
2. Estimate the CTR of the ads meaning what percentage of site visitors click on the
banner ad. Again, do some research, make a guess and give your reasoning.
3. Decide how many ad units you should have per page. What happens to CTR if you
increase the ad units? How will uses react if there are a lot of banner ads?
4. Do the calculations for total revenue from display ads
Second, make your estimates on revenue from text ad advertising:
1. Estimate the CTR and average cost per click. Research make an educated guess
and tell why you think this guess is good.
2. Decide on number of ad units per page.
3. Do the calculations for revenue from CPC ads.
Third, make your estimates on revenue from affiliate commission:
1. Estimate the average CTR and click through rate.
2. Think about where the affiliate links will lead? What is being advertised here? For
travel, we assume hotel bookings. For fashion, we assume clothing and shoes.
3. Estimate average order value for hotel bookings and clothing + shoes. Search on
Google for example: average order value zalando, average order value hotels.com.
4. Estimate what the destination conversion rate is for hotel bookings and clothing +
shoes. This means, how many of the blog visitors who click on a hotel link actually
book a hotel? Are they only curious? How often do people actually book hotels per
year? What about people who click on links for clothing on blogs? How many of them
actually buy the shoes or clothing?
5. Do the calculations for revenue from affiliate commission.
After you have calculated your estimates for all three ad types, add them all up. Make sure
that you convert from revenue per week to revenue per month.

Answers:

Pricing models on online advertising

The world is now moving towards the digital advertising strategies that allude to maximize the profitability and awareness of a business. Many kinds of businesses are therefore hiring individual experts in the field of digital marketing who are well familiar with the click funnels operation and social media management. Those individuals are paid either when an ad is clicked, seen or even both according to an advertising company (Tran, H, 2017). More so, the cost of advertising varies from country to country and from continent to continent. It is not all the continents that many people can see a product and at the same time make a purchase. For example, developing continents like Africa is not the same as Europe.

The model used to conduct the ad also determines how much it can make per day. Some of the models used have cost per mile/impression (CPM), cost per click (CPC) or pay per click (PPC) and Per User action (CPA) (Chaouki, S. M., Mitchell, T. P., Burns, C. H., & Bulmash, S. L, 2018). The cost model per method is different as every method operates differently (Tran, H, 2017). The United States is the largest digital advertising market and according to the estimates made in 2016, united states used more than $180 billion on advertising. China being the second in that arena, the united states double its spending on advertising. According to Kantar TNS Finland (2017), digital advertising cost was 33.3% of the total cost.

A total of 82.7 euros were spent in the first three months which lead to a change of 10.3% as compared to prior year. The table below shows how Finland operated on its digital advertising platforms and the spending in the year 2017 extracted from emarketer.com.

With regard to the above table, it shows the digital advertising growth in Finland which can contribute very much to the overall growth rate globally (Rodgers, S., & Thorson, E, 2017). When one starts a blog, it is recommended to know the trend in the market in which it will operate in and help with the cost and revenue estimation. If many businesses in Finland embrace this method of marketing, then, it will have a promising future for the businesses.

Cost per click (CPC)

This is the cost incurred by a firm in advertising its products and create awareness in the globe by use of pay per click which means if someone clicks an ad, there is a cost for it. This model is easier and money is made through the google search, Facebook, tweeter, WhatsApp, Instagram, LinkedIn, emailing etc. The blogger in Finland whose blogs traffics is estimated to be 25,000 unique visitors per week and the blog containing two product types, that is travel and fashion products, and this traffic possibly can visit 4 pages and come to a total of 100,000 while according to adexpresso.com (2017) Finland average CPC is $0.76 as below

CPC in Finland, therefore, is below average as compared to other countries like united states. Therefore, the total cost per click, assuming all the visitors clicks the ad would be:

The number of clicks * the cost per click

100000*0.76=$76000

The data researched by smart insights in January 2018 shows that Finland has a very small figure for click-through rate as compared to other countries like the United Arab Emirates. The United Arab Emirates have a click-through rate (CRT) of 0.18% while Finland has only 0.05%. this clearly tells why the CPC operator does not earn much in Finland markets. The cash flows are very minimal. United, on the other hand, is superior to the filipin by 33% Therefore,

125*0.65 the estimated CPC for one week which is

81.25*4weeks= 325 EUR per month

This sounds a good income for the advertiser but if the ad is run in the other countries like the United States, the cost may be much higher. The table below shows the click-through rate per country that does well in North America, Europe, and the middle east.

With the help of the above tables and information, the cost per click is very low in Finland and it can only generate a revenue of 325 EUR per month which is much lower than in other countries.

Cost Per User Action (CPA)

This is the model which is paid only when the traffic has an impression on the ad, clicks it and makes a purchase. If the customer clicks the link but does not purchase an item, there are no payments made. For example, if the advertiser has 1000 click and out of this 10% makes a purchase and per action is paid a rate of $10, therefore, the cost per action will be 10%*1000*$10= $1000. Cost per action is cheaper for many companies and more certain as one must make a purchase for the transaction between the advertiser and the firm to take place (Altberg, et, al., 2018).

Since this is an affiliate link, not all clicked will make a purchase, but just a few. Many businesses prefer the ratio of return on investment and the cost per acquisition rate to be 5:1 (Altberg, et., al 2018) . This means, when a business spends 5 dollars on advertising, then, five dollars are generated. If the business is charged a 20% conversion rate, it gains 80% of the expected return on investment. The company spends less and other models like cost per click may spend more if the link goes viral, and the company will incur o lot of charges, and the advertiser will earn more. Therefore: by use of the above demonstration, there are 25000 clicks per week and the blog contains two products, travel, and fashion products. Both have a percentage of 50% on the blog. Cost per action is 20% of return on investment, therefore, if the blog sells products costing $100, the affiliate link will earn the advertiser 20%*100, which is $20.

The cash flow for the month will be as follows assuming 10% of the click-through rate;

0.03*0.2*100*277.78

=166.67

Cost per mile/ impression

This is the cost incurred by a company for every impression made on the link even though the purchase is not made immediately. Here, the objective of the firm is to create awareness. This is the oldest advertising method ever existed. A good example of this is where, a video in youtube Is linked with an ad, which, when the viewers are busy viewing the video, or before they start viewing, an ad appears. In this, the owner of the video is paid may be one dollar for every 1000 viewers assuming all the viewers saw an ad.

The cost per mile model is used where the company I not looking directly at the profit and capital maximization but looks indirectly through making awar5eness that the coma[nay really exists. The cost per mile. Is earned by the advertiser when he advertises the link and people see it.

This method is widely used worldwide by use of youtube, facebook, and other social platforms (Altberg, et., al 2018). Cost per mile rate of income is similar in most of the countries, for example, youtube will pay one dollar, no matter where you are. Anybody within the globe can view the content. For some social media platforms like Facebook, one can set where the ad will run (Rodgers, S., & Thorson, E, 2017). For example, if the target population is in Europe, Facebook has an option that enables an advertiser to reach the target audience.

The estimated CPM in united states is around $2 to 3. The formula for getting revenue per mile is as bellow.

Revenue per mile = (Cost of 1 Unit of a Media Program) / (Size of Media Program’s Audience) x 1,000

the revenue per mile is the revenue that a company gets when customers see the advert and make a purchase immediately. The company then takes the sales less cost and the revenue is obtained. The cost is the payments for the advertisement to the advertiser (Chaouki, S. M., Mitchell, T. P., Burns, C. H., & Bulmash, S. L, 2018).

Cost Per Mile/thousand estimation in the blog (travel and fashion)

If the cost per mile in united states is $2-3, and as stated earlier, united states are the biggest advertising market in the world, so Finland must be lower than this. The indication shown by the above argument is that Finland has a lower click-through rate, and the same applies to the cost per mile/thousand. More so, in youtube advertisement, it might be the same.

Every advertiser is looking forward to attracting more traffics to increase the clickthrough rate. They can wish to add as many ads as possible on one blog page. For the advertisers using Adsense, it had some rules that you could not exceed 3 ads on one webpage. But for the premium, the advertisers enjoyed adding up to 6 ads on one page. Later, the absence revised their policy and now one can add unlimited numbers of ads.  Adding too many ads may lead to the content not making sense (Rodgers, S., & Thorson, E, 2017). I maximum of 6 ads are good to go.

For the affiliate links, the target is the content that is discussed in the blog. For the travel, the blog should be clear on the travel booking, hotel and time for departure, for the fashion, the target audience is those who can make purchases of clothes and shoes. It should be written in a simple English or any other language that is understood by the audience, attractive, convincing and touching (Rodgers, S., & Thorson, E, 2017). These two blogs advertise different things and therefore, the advertiser should be careful on the ad conduction.

Finland has not grown very much in terms of digital advertising as compared to united states. In the graph above, it shows the status of Finland and the results for CPC and CPA is below average. This means, even the cost per thousand, the performance is not different. This blog will not have more than the average cost per thousand because the number of traffic is lower than in other countries like the United States and the United Arab Emirates (Rodgers, S., & Thorson, E, 2017).

The average order value made through the affiliate links is $340 and those made by hotels official booking page is about $600. This is according to the hotel champ website. This shows that hotels should invest heavily on the official landing page as it keeps good relations with other affiliates.

Because the blog uses all three types of advertising, the estimated total cost is as follows:

CPC+ CPA+CPM = total cost

325 EUR + 166.67 EUR+ 117 EUR

The total cash flow for the blog will be 608.67 EUR

Below is the tabe of sie revenue modelshowing the activities for the three advertising methods:

The click through rate is the rate by which the people of one country are able and willing to click to a certain link and probably make a purchase. The click through rate of finland is lower than that of other countries like us and middle east as shown in the table above.

Conclusion

All the companies are looking forward to blogging and digital advertising (Rodgers, S., & Thorson, E, 2017). This involves blogging and also optimizing the profitability by adding more of the ads in the blog. The argument above shows that the three methods are suitable and the blog advertising can be done on the Facebook, Instagram, youtube, and many6 other social media platforms.  

References

Altberg, E., Faber, S., Hirson, R., Van der Linden, S., Lyon, B. H., & Manca, P. G. (2018). U.S. Patent No. 9,984,377. Washington, DC: U.S. Patent and Trademark Office.

 Chaouki, S. M., Mitchell, T. P., Burns, C. H., & Bulmash, S. L. (2018). U.S. Patent No. 9,996,856. Washington, DC: U.S. Patent and Trademark Office.

Rodgers, S., & Thorson, E. (Eds.). (2017). Digital advertising: Theory and research. Taylor & Francis.

Tran, H. (2017). U.S. Patent No. 9,842,337. Washington, DC: U.S. Patent and Trademark Office.