Are the days of CPM (cost per thousand) banner advertising dead?

Note from Kara: Ryan Peddycord, President of Resource Nation is a frequent contributor to the Small Business Blog discussing ways you can plan, start and grow your business. Resource Nation is a company that matches businesses to vendors via a database of local & national, pre-screened vendors, in over 100 categories ranging from phone systems to web designers.

It was only a few years ago that businesses began incorporating online banner advertising into their marketing budgets; drawn in part by the ability to quantifiably track how many visitors viewed their ads and clicked through to their website.  This was just the beginning of ROI driven online advertising.  Since this time, Google has born cost-per-click advertising (CPC), Facebook catapulted social media, Double Click revolutionized cost-per-action, and Lending Tree popularized pay-per-lead marketing

The question most commonly posed to me (other than when the housing market will hit the bottom) is if businesses should still use what many now call ‘traditional’ online advertising (aka CPM banner advertising) to reach its target market?

As with any question about marketing strategy, my answer always begins with “depends” and ends with “testing.”  But if you’re a small-to-mid sized business, traditional banner advertising is going to be on the bottom of a long list of options.  In today’s economy, more so than any other, every business should start building their marketing plan with programs that can be most directly correlated to an immediate ROI.  Here are a few types of online marketing strategies that I typically recommend starting with: 

· When possible, always start with affiliate relationships.  If you can create affiliates (typically defined as another company selling or referring your services for a share of the revenue you receive), this does not cost you any up-front investment for each customer attained.  Find good partners and treat them well.  They will only stay with you if you provide them value in return for referrals.

· For businesses with a sales department, maximize your pay-per-lead advertising budget.  If you sell home loans, talk to Lending Tree; if you sell home improvement services, talk to Service Magic; and if you sell business services, of course I’m going to tell you to talk to us at Resource Nation.  Test these leads and calculate the cost to acquire a new customer.  E.g. If you buy fifty leads for $10 each and you close five new customers, you are paying $100 for each new customer.  Hundreds of thousands of companies use pay-per-lead advertising because it works and it ties to an immediate ROI.  – Start small, track your results, find a sales approach that works, and then expand.

· Evaluate CPC and CPA advertising.  Both of these methods only require you to pay for an action.  For example, you only pay Google when a visitor clicks on your site.  Again, start small, track your conversion rates (number of actions per sale), and then expand.

· Social Media and SEO are GREAT channels and investments for promoting your business, but these can be more difficult to track a direct ROI.  Start out by establishing the metrics you will use to calculate a ROI and build a budget based on the value of the results.  If you are a small company, it may be enough to just start a blog, create a Facebook profile, or Twitter.  Although you may not be able to calculate a direct ROI as easily as the strategies above, both of these methods can usually get implemented with minimal effort. (i.e. free)

So when are banner advertisements appropriate? If you’re a larger company, banner ads can drive traffic while also enhancing your ROI in every other channel of advertising you participate.  However, if you are a smaller company and trying to tie a direct return on investment to your budget, go back through this list, start at the top, and figure out how to add budget to the programs you can tie a direct ROI. 

Banner advertising isn’t dead, and it isn’t going to die.  But, just like traditional print and television ads, it isn’t for every type or size of company.  If you’re a small company, focus on what you can most easily tie a direct ROI and leave “traditional online marketing” for the big dogs

About the Author: Ryan Peddycord