What is the difference between revenue expected from CPM, CPC, CPA and PPD (pay per deal) and which online advertising model guarantees higher ROI for technology marketers and B2B companies?

First I will give a brief overview of major ad models for those who are emerging marketing stars. If you are a marketing veteran you might want to skip the intro and jump right to ROI calculation.

Until now there have been four primary on-line advertising models widely used by online marketers:

- Pay Per Impression. CPM model.
- Pay Per Click. CPC model.
- Pay Per Lead. CPL model.
- Pay Per Action. CPA model.

In April of 2009 we introduced more lucrative for advertisers model – Pay Per Deal.

Let’s compare…

The Pay Per Impression model:

Cost per impression, often abbreviated to CPI, is a phrase often used in online advertising and marketing. It is used for measuring the value and the cost of a specific e-marketing campaign. This technique is applied with web banners, text links, and e-mail advertising. CPM (cost per thousand) is frequently used by advertisers; it relates to the cost for a thousand page impressions. For publishers the related abbreviation RPM (revenue per thousand impressions) is usually used.

The Pay Per Click model:

For online advertising, the numbers of views can be a lot more precise. When a user requests a Web page, the originating server creates a log entry. Also, a third-party tracker can be placed in the Web page to verify how many accesses that page receives. CPC is an Internet advertising model used on search engines, advertising networks, and content sites, such as blogs, in which advertisers pay their host only when their ad is clicked. Websites that use CPC ads will display an advertisement when a keyword query matches an advertiser’s keyword list, or when a content site displays relevant content.

The CPC advertising model is open to abuse through click fraud, even though some search engines try to implement various automated systems to guard against abusive clicks by competitors or corrupt Web developers.

The Pay Per Deal model:

CPM/CPC/CPL models rely on budgeted advertising dollars. CPA is the only model that reduces the risk of low conversion because it is based on performance only (sales). While this opportunity is available for consumer products, and a limited number of business products and services that are sold on-line, it is absolutely not suitable for companies that close business off-line, or those that don’t rely on Web-based shopping carts for accepting payment. These companies usually have a long sales cycle or they market highly priced products and services. An average order can vary from $10,000 up to as high as $100,000,000. If you run an IT service company, real estate development company, or a luxury yacht manufacturer, there is no way you can use currently available technologies to run on-line Pay Per Action campaigns without creating a significant infrastructure. There has been no affiliate networks that serve this market segment. Well, till we launched our solution.

In contrast to others, our PPD (pay per deal) model is supported by powerful tracking technology. It is extremely beneficial for both advertisers and publishers. For advertisers it’s a new performance marketing opportunity. For publishers it’s a new avenue of traffic monetization. The PPD model minimizes the efforts of your marketing and sales staff. CPM is a hard sell, while CPD is a dream comes true — who doesn’t prefer to pay a finder’s fee for booked business, instead of paying for advertising that may or may not be effective?

Affiliate marketing derives its influence from the ease with which user activity may be observed and tracked across multiple websites and other media by leveraging the co-operation of a merchant and a network of affiliates who advertise or promote the merchant’s offers.

While books, airline tickets, and other commodities may be sold this way, many products and services require a more consultative approach. Here the majority (or totality) of the sales process may occur offline. Unfortunately for the referral partners who initiate sales, there’s no easy way to gain visibility into this process once it is in the hands of the merchant.

We address this problem by integrating the traditional tracking methods used by affiliate marketing with a system of tracking sales information as a customer moves through the sales pipeline. All information about the sale, such as the probability of closing, what part of the sales pipeline the customer is in, and other information is now available for reporting to affiliates.

Affiliates may now see a report from the merchant or ad/referral network that shows how many customers are at each stage of the sales process, how many customers (and their deal value) are at what probability of closing, the estimated time frame to close, and other detailed reports, in addition to the common reports about what campaigns are producing the best results. Without such visibility, affiliates lack the motivation to promote offers that have a longer sales cycle or those that are not easily tracked and verified.

The visibility into the sales pipeline is delivered to affiliates, allowing them to understand the potency of their promotion efforts and the likely gains they will experience. Naturally, they may view this information either online or through offline reports. In addition, the commissions that affiliates receive are clearly documented.

By applying the PPD (pay per deal) model, now publishers and affiliates can tap into a portion of the advertiser’s profits. It can become a lucrative opportunity for any potential affiliate who has a website – from a blogger to a publishing powerhouse or even traditional off-line media.

Calculating marketing ROI:

So, how do we determine which model guarantees us higher MROI?

Return on investment (ROI) is a measure of the profit earned from the investment:

(Profit – Investment)
_________________
Investment

CPM model now became an archaic marketing method, a slowly dying advertising dinosaur.
CPC is still widely used, as some marketers just don’t know better.

Well, let’s educate ourselves a bit and learn about advantages of Pay Per Deal ad model….

Let’s compare your marketing ROI for PPC and PPD campaigns.

Example.

Scenario 1. Pay Per Click marketing.

Let’s assume that
- your monthly marketing budget for PPC ads is only $5,000/month; which means your annual budget is $60,000.
- your average order per client is $50,000
- your average CPC is $5
- your click-to lead conversion is 0.05% (common number for many B2B companies)
- your lead to sale conversion is 10%.

>> Your ROI for your Pay Per Click campaigns in this case = 3 and
>> Your annual revenue from CPC is only $300,000.

Does it make you and your CEO overexcited? Doesn’t make me hot either…

Scenario 2. Pay Per Deal marketing.

Now let’s assume you hire IdeaMama Ad Network (because we are the only provider of Pay Per Deal affiliate campaigns). You pay us $1995 setup fee, so we provide you with a lead management software and a proprietary lead and affiliate tracking system; we attract an army of affiliates to your campaign and build much larger lead pipeline than one you could otherwise afford with your budget. Our network and affiliates will be paid commission from each sale your sales reps will make with leads we generated for you.

Now our stats for Pay Per Deal ad campaign can look like this:

- your annual marketing budget for PPD ads is only $1,995 plus 10% on each deal closed
- your average order per client is $50,000
- your lead to sale conversion is 10%.
- Instead of only 60 leads per year that you can afford with CPC, we have generated for you at least 600 leads (let’s be extremely conservative here), and all at our own cost.

>> Your ROI for your Pay Per Deal campaigns in this case = 7.9 and
>> Your annual revenue from PPD is $3,000,000.

See the difference?

How do we generate leads for you?

We employ optimized combination of various marketing methods:
- Online marketing PPS, PPL (banner ads, text links, contextual links, off-page SEO, articles, blogs, forums)
- Email marketing
- PR
- Trade show and other event marketing
- Radio and TV ads
- Social media marketing
- And other methods suitable for each particular business.

If we promote your campaign even more aggressively than in the scenario described above (will design more landing pages, do more campaigns optimization, introduce more affiliate incentives, offer higher payout, then amount of leads will grow significantly.

If we generate 500 sales leads a month for you (6000 leads/year), then

>> Your ROI for your Pay Per Deal campaigns in this case = 8 and
>> Your annual revenue from PPD is $30,000,000.

Do you see the difference yet?

Now do yourself a favor, give your CEO, CMO or the Board at least one good reason why you should not be fired if you are still not using Pay Per Deal affiliate marketing model with PPD affiliate networks, and instead waste marketing dollars on CPM and CPC models that return unimpressive sales results with low MROI?

It’s time to revise your marketing plan, marketing stars!
We are coming into 2010 and old thinking has to be upgraded to marketing vision 3.0.
It’s about time for a New Year corporate resolution. We will help.
…
by Olga Kostrova, CEO of IdeaMama Group | IdeaMama Ad Network | IdeaMamaClub.com |

Connect with me on LinkedIn & Facebook | Follow me: twitter.com/IdeaMama | Skype me: IdeaMama |

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