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How much is my traffic worth?

How much is my traffic worth?

Posted on Feb 18, 2010 by Paul White

This is often the question many webmasters ask themselves.  The answeris not a straight forward one, but after discussing this with a few ofmy clients I have come up with a way to help you decide how much yourtraffic is worth.

Understanding what advertisers want

Building a website for seasoned webmasters is easy, but when it comes down to building a website that will make money via advertising sometimes you have to change the way you plan your website.  You are stuck in a chicken or the Egg situation.  You need traffic to get advertisers, and you need advertisers to get money so you can build a site that will get traffic.  For business owners that don't have a clue about programming this usually means they need some capital, and then hire a developer or a team of developers to build you a website.  But the costs of building a decent website which can run in the 10K - 100K range just to get it off the ground, the the costs to keep it going, will deter most investors.  The Dot Com Bubble in 2000 was a result of investors all thinking that they understood the internet.  They thought they could just build it and they would come.  This of course resulted in thousands of small startups going under. 

Many small scale websites ( getting under 1000 unique visitors / day ) don't have the time to sell advertising direct.  Thankfully Google Adsense provides an easy way to get advertisers on your website.  But unlike all the stories you might hear about guys with blogs making 10K a month with Adsense, the reality is most of them don't make $100 / month.  This is mainly because they develop content that advertisers simply don't care about, and when google feeds them contextual ads, they are usually the ones that pay 5 cents per click and not $5 per click.

Recently I was setting up some Adwords campaigns for a few of my clients.  What I learned was that anything related to insurance is expensive on google Adwords.  You will pay around $10 / click.  And from my client's experience this did not result in a good return on his investment.

What is a reasonable return on investment with Google adwords and adsense?

According to Google the CTR ( click through rate ) will average about 1.5%.  This means for every 1000 impressions you should get 15 clicks.  Unfortunately in  my experience this is often closer to 5 clicks for every 1000 impressions or 0.5%.  Then after a person visits a website through an advertisement what is the chance that they actually make a purchase?  That would be another 1%.  So if you think about this.  With something like insurance which runs $10 / click.  And if you need 100 clicks before you will get 1 sale, you just spent $1000 to get a single sale.  Depending on the insurance product this could potentially be worth it, but for most smaller policies it wouldn't come close. 

When an advertiser spends money with a website, a magazine, a radio station, or even TV.  They need to at least make back what they spent on the advertising.  So if a company spends $1000 on advertising they need to get back at least $1000 after expenses to make it worth their while.  For many of the traditional formats ( TV, Radio, Newspaper ) you were forced to pay their rates, and then had no way to measuring what the response was to your ad.  On the other hand the internet provides a certain level of transparency that allows advertisers to measure the performance of their ads.  This transparency has made advertising online very cheap.  But with programs like google's Adsense which is prone to click fraud, its hard to truely tell how successful your ad is.  Something I tell my clients is to only advertise on the google search engine.  Don't let your ads go on the micro blogs where traffic is low, and the clicks are most likely to be the webmaster and his friends.

What to charge advertisers on your website.

If you want to maximize your profits, its always best to get direct advertisers. Google takes an unknown percentage out of what they charge the advertisers.  This is likely to be a very high percentage for the higher paying stuff like insurance.  The question is of course what do I charge for advertising?  The following variables will affect the rates you can charge for advertising
  • Monthly Unique Visitors
  • Monthly Impressions
  • Monthly new Unique Visitors
The highest click through rates will be in the first couple months.  After that the click through rate will drop off gradually and then plateau. The reason is the first month, the advertisement is fresh.  Every visitor to the website is seeing it for the first time.  But by the 3 month, all the websites's loyal visitors have already seen it.  If they didn't click it in the first 2 months, they are unlikely to click it in months 3-12.  Now the only people you are reaching are the new visitors the website.  This means that for websites with a loyal fan base but little growth, they will have a hard time keeping advertisers, as after a couple months the ad's performance will drop. 

Click Through Rate Chart

As you can see it would be in the advertisers best interest to advertise for only the first 3 months.  For websites that have no growth, this time span might be even shorter.  I suspect this would be typical for most members sites that have a loyal member base.  The chart above was created with data from a members site with 1400 members ( 630 active / month ) and 10K unique ( organic ) visitors / month.  The typical advertiser on this site would be a lingerie store.  Now lets compute some figures.

10K unique visitors x 5.5% click through = 550 clicks

550 clicks x 1% purchase rate = 5.5 purchases

5.5 purchases x $50 average sale = $275

$275 x Profit margin of 50% = $137

So if you were to charge this advertiser $100 / month for advertising, they would get a 37% Return on investment. Use this type of math to determine how much to charge for advertising on your website.  Then recommend to your advertiser to update their add after 3 months to try to make whats old new again.

Its important to not over charge your advertisers.  This is what has been killing TV, radio and newspaper for years.  They charge too much and then don't perform to the customer's expectations.  Don't make this mistake with your website. Its better to charge too little and then let your advertisers get into a bidding war for your inventory, than to charge too much and burn out your advertisers.

So how much is my traffic worth?

In my opinion, you should give your advertisers a good 25% return on their investment. Your traffic will be worth the profit margin of the advertiser's sales they get from your website's referrals minus 20%.  So if you can give your advertiser $10K of profit a month, then the advertising is worth $8K / month to them.

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