Online Advertising Concepts 101

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For anyone not familiar with all of the concepts and terms in internet advertising, I thought I’d create a quick little cheat sheet.  I’ve broken down the terms by topic (general, ad banners, paid search, etc).  There are really just a few core concepts and a lot of specific variants, just enough to make it confusing if you don’t speak this language every day.  So without further ado:

 

I. GENERAL

  • Ad Impressions – The number of times your advertisement is shown. It is not the same as page count since it might show multiple times on the same page. Its not the same as visitors, since the visitor may see it more than once.
  • Ad Units – An ad unit is a piece of page real estate that has been set aside for advertising.  Common ad units are the 7288×90 ad banner in the header, the 300×250 rectangle at the top of a side bar, or a 160×600 “tower” along the content.
  • CPA – This is the Cost Per Customer Acquisition.  Let’s say your ad was clicked 10 times at  $1 each, but only 2 of those people completed the goal you specified (user signup, purchase transaction, etc).  Thus your cost per customer acquisition is $5 (10/2).
  • KPI – The Key Performance Indicator is a marketing term that expresses performance of your efforts in an easy to understand number.  Most of these terms could be described as KPIs and will be referred to as such below.
  • Remnant Inventory – Remnant ads are the low-cost clicks that publishers use as backfill and will display when all of their premium advertising is exhausted. Some networks such as BlueLithium and ValueClick specialize in nothing but the low cost remnant  inventory.
  • Ad Server – Assuming you’re a sophisticated advertiser, you’re using an ad server to prioritize several accounts of advertising. Priority is assigned based upon the ad rates you can achieve with that given account. You’d make sure to utilize the higher paid CPM ads first, and then backfill with your secondary and then tertiary accounts, remnant inventory, etc.
  • ROAS – An acronym for Return on Ad Spend.  Similar to Return on Investment (ROI) but specific to the return on marketing dollars.  Calculated as the (return of investment –  cost of investment) – cost of investment.  In otherwords, if a $2 investment returned $5, the ROAS would be 60%.

II. AD BANNERS

  • CPM – This is Cost per 1000 Impressions.  The ‘M’ is the latin symbol for 1000.  If you are paying a $4 CPM, then you are effectively paying $0.004 cents each time your ad is displayed.
  • eCPM – The Effective Cost Per 1000 Impressions is used in mixed advertising models where you have some CPM, CPL, PPC, etc, you ultimately need to boil all of this down into a single KPI. Once you factor out all of these various cost models, what is the bottom line amount that you are paying (or earning) per 1000 impressions of an ad.
  • RPM – Revenue Per 1000 page Impressions (not per ad unit).  This is a rather confusing and relatively new term in the industry, but something Google switched to in 2011 to express performance of an overall *page*, rather than individual ad unit.  So, if you have 3 ad units on a page, this KPI now expresses the performance of the aggregate of all 3 units.  Why?  Because it looks better and its more difficult to compare to competitors.  Instead of showing that you have a $2 eCPM, they can now show you a $6 RPM.
  • In-Text Ads – If you’re ever see ads that pop up from within text when you roll over (or click) a word with a double underline, then you’ve see an in-text ad.  These are generally CPC based and work *very* well for some sites and poorly for others.  It can be a nice incremental add to your overall monetization model, if you run a content site or blog.  Beware of and test for ad cannibalization however.
  • Ad Cannibalization  – The tendency for some ads to take revenue away from others.  A simplistic logic would suggest that if you have 4 ad units on a page, you’ll make more than if you had 3, but its not necessarily true.  It all depends upon the type and placement of those ads.  Four units can in fact earn the same so slightly more, but degrade the overall user experience in the process, costing you more in the long-run.  The truths are different for each site and need to be monitored and tested.
  • Interstitials – A few popular financial publications online are known for interrupting you before you view a page in order to show you a full-page ad for 10-20 seconds.  These are called ‘interstitials’ and as annoying as they are, they pay *very* well. They’re not for every website and require high value content on the other side of the ad if you’re concerned about customer loyalty, but their CPM warrants exploration.
  • Re-Targeting – If you’ve ever noticed an ad for a company will begin showing up all over the Internet after you’ve been to their website, this is the magic of “retargeting”.  This is made possible because Google controls some 70% of the online advertising market now with their AdSense and DoubleClicks networks.  All they need to do is “drop a cookie” to track you when you visit any website displaying their ads or embedding retargeting beacons.  Then, if they see you’ve been visiting an advertiser, that advertiser can opt to show preferred ads to you after that qualification event occurred.  This is a significant new technology in the ad banner market because ad banners were generally considered to be unprofitable prior to this.  After this innovation, ad banners can be equally or even more profitable than their PPC counterparts.
  • Ad Flight – When an advertising deal is reached with a given publisher directly (instead of a network), that particular advertising agreement may be referred to as a “flight”.

III. PAID SEARCH ADS

  • PPC – Pay Per Click is a search advertising model that began with Overture.com over a decade ago and was popularized with Google. These are the ads you see above and to the right of the ‘organic’ search results.  Users of GOogle’s Adwords product will pay each time a user clicks on their ads.
  • CPC – The Cost Per Click (CPC) is the amount that you will pay each time a use clicks on your ad. Let’s say you’re spending $1 per click.  You add shows 100 times but is only clicked 10 times, you will owe $10.
  • CTR – This is a comparative number that expresses what ratio of ad impressions to ad clicks are achieved.  If you have 100 impressions and 10 clicks, your CTR would be 10%.

IV. PERFORMANCE ADS

  • PPL – The lead generation business wants to pay based upon a Pay Per Lead basis, which basically is the ‘bounty’ they will pay you per signup on a web form.  Lead generation can provide high payouts but the industry has become very sophisticated about the quality of leads.  A lead’s quality is determined by how much data is provided, how you got them to sign up (incentives?), and sometimes validation of the data.
  • CPL – The cost per lead is how the leaden company would refer to the cost of acquiring a *prospective* customer (aka a “lead”).
  • CPA – If CPL determines the cost of acquiring a prospect, the CPA is a different KPI that indicates how much an actually converted customer would cost.  Consider that of 100 ad impressions, 10 will fill out a form and 2 will convert.  You cost 10 prospects (CPL) and 2 customers (CPA).

V. AD OPTIMIZATION

  • Quality Score – In Google’s effort to maximize their own revenues, they have determined a number of quality criteria that will effect how often your ad is shown and how much you must pay for positioning.  This all comes down to how likely is a user to actually click on your ad.  They discourage ads that contain phone numbers since it would be free advertising but encourage ads that contain the key search terms since they perform well.
  • Landing Page Optimization – LPO is the art of designing a single web page to improve conversion rates. This is usually specific to PPC advertising campaigns, but can also be applied to other online advertising channels.  The basic goals are to (a) ensure your key terms are highly relevant to the terms you advertised for so the user feels they found what they’re looking for, (b) a brief synopsis of the value proposition, and (c ) a “big-ass button” (BAB) to drive the users toward your desired goal.  Use of A/B testing tools will help to drive the optimization of the landing page.
  • Conversion Optimization – CRO is a broader view of optimization that includes Landing Page Optimization.  Here you are looking at many, many metrics to find what works.  You may be using A/B/n testing tools to optimization on-page but you may be also looking at cross-pollinating effects too.  For example, how were customers acquired, can you use marketing automation to follow up with them in an intelligent way and eventually bring them back for purchase?  Can you speak differently to prop sects based upon where they signed up from and what their user behavior is?
  • A/B Testing – There are many tools available now to help with comparative testing – Google Optimizer is a free one, and Landing Page Optimizer and Optimizely are two popular paid products.  These products allow you to randomly display different versions of your landing page and then compare results.  Sophisticated online marketers are constantly testing and refining their landing page designs and messaging based upon A/B testing.