Welcome to Online Advertising Answers! A monthly dive into my Quora mailbag for three questions about Digital Marketing that I’ve found extra interesting for one reason or another. If you would like to get in touch with your own digital marketing questions, visit my profile on Quora and send a request.
This month’s questions are:
- What’s a good click-through rate percentage?
- How do I estimate ad impressions available for now?
- In digital marketing, when should you rely more on the cost-per-click and when should you rely more on the cost-per-impression?
A: “What makes a good Click-Through Rate CTR is different depending on what medium you are talking about. It also depends on what industry you are in, however, there are lots of good benchmarks out there.
General ‘Good’ CTR Benchmarks
Search ads / AdWords (now called Google Ads): 5% CTR for search ads is the minimum you should aim for on AdWords. This is demonstrated by the fact that Google gives charities money to advertise on Google Ads ONLY if they beat 5% CTR.
As Google Search Ads make up most of the market, you can safely assume this 5% benchmark goes for all search ads. 10–20% CTR is very good.
Display Ads: 0.2% CTR is ‘good’ for Display ads. The overall average for Display ads is around 0.1%, however, that number is skewed by the vast majority of Display ads doing terribly!
If you can beat 0.2% then you’re doing something right. 1–2% is very good.
If you want to explore different categories, Google does provide this benchmark tool, but it looks like it hasn’t been updated in a while: http://www.richmediagallery.com/learn/benchmarks
Video Ads: Perform incredibly well, and a 10% CTR should be achievable by most pre-rolls. Any reasonably well-made ad should expect 20–30% CTR easily.
Facebook Ads: 1% CTR is about average overall for Facebook ads, so 2–5% CTR could be considered good. 20–30% could be considered very good on Facebook ads.
Email marketing: With emails, CTR is called CTOR (Click-to-Open-Rate) but it means essentially the same thing as CTR. A good CTOR is between 20–40%.
This is much higher than most CTR’s simply because it’s a biased metric – for someone to click on a link in an email they have to have already opened the email. This means they are already interested in what you have to say, so clicks are much more likely!
***For all of these, it really does depend on your industry. The key with CTR is always to try and improve on your own performance, rather than to worry about how others are doing!***
What is a click-through rate?
While it’s all well and good talking about good vs bad CTRs, let’s talk about what a Click-Through Rate is in the first place. A Click-Through is when someone clicks on something (such as an ad) and goes to a different URL than the one they were on.
Therefore the Click-Through Rate is the percentage of people who had the opportunity to click-through and did. The formula for CTR is:
CTR = Clicks divided by impressions (multiplied by 100 to make it a percentage)
What does CTR mean?
Like with all marketing metrics, rates are better than absolute figures. By this, I mean that CTR is a better measurement tool than clicks.
This is because you can use CTR (or any metric with rate in the name) makes it easy to compare ads (etc) of different sizes. So if one ad is seen by 1,000 people, and one ad is only seen by 100 people, you can compare the CTR to see which is actually more popular!
It’s also important to note, that you can think of CTR meaning three different things:
- The percentage of people who did click on your ad
- The likelihood of people clicking on your ad in future
- The speed at which people click on your ad (ie if your CTR is 3% then every 100 times your ad is shown, you should get 3 clicks).
All of these are useful in their own ways!
CTR is also a good proxy for interest – the higher a CTR you have, the more interesting people find your ad, and that is a good thing! It’s not the only thing though.
Is CTR Important when I’m advertising something?
This is the key question. Most of the time, CTR is not useful. If you are advertising something, the only time CTR is really important is if:
- You are advertising a post/article and you just want people to read it.
- You are unable to track any other goals
For a charity or news organisation, CTR can be very helpful in seeing how an ad is performing. It is a great and direct form of engagement rate – the more people see an ad and click on it, the better that ad is.
For pretty much everyone else, you should make sure you have tracking in place to measure how many sales/leads/downloads etc your ad generated. Relying on CTR when your goal isn’t simply just views of a page doesn’t make any sense – especially when you can often have a high CTR, but a low conversion rate (if you are interested – I explore the reasons why that is here: What does it mean to have a negative relationship between CTR and online purchases?)
If you are advertising something and keep getting told the ads are doing great because the CTR is great – take a step back and look at what the ads are actually getting you. A high CTR is just a convenient metric for ad networks and website owners to report on, but it’s not actually that helpful to advertisers most of the time.
Is CTR important when I put ads on my site?
YES! If you want people to buy things through the ads on your site, then people have to click on them! Of course, they still might not buy something, but if they don’t click then they have no chance of doing anything!
This might seem contrary to the advice I just gave to advertisers, but as a website owner, your options are quite different. You should always optimise ad campaigns to whatever way it is being paid for (ie clicks for CPC ads, Leads for CPL ads etc). Unless you have good tech and people backing you up though, it’s most likely that clicks will be the main thing you can improve.
Find more advice on improving CTRs for ads on your site here:
I hope this helps.
The answer to this is much simpler than you may think. The best inventory forecast for next month is *usually* the number of ad impressions you received last month (within about +/- 10%).
While there are, of course, always going to be seasonal differences in your performance the best indicator of how a site will do next month *in general* is how it did last month.
If you know that your site always has a great December (or there is a global catastrophe), then factor that in as best you can, but for business-as-usual months you should assume that things will carry on as normal and use your past performance to predict your future revenue.
If you want to look at some best-case and worst-case scenarios, I have made this inventory forecasting calculator, which simply gives you a likely scenario (staying within +/-10%) and an unlikely scenario (going outside of +/-20%).
While no-one can predict the future, you can estimate it based on the past. At least with ad impressions anyway.
What if you haven’t run ads on your website before?
If you haven’t run ads before and want to work out how many ad impressions you are likely to receive, then multiply your page views by the number of ads on each page, then take off about a third to be safe.
This is a cautious, yet reasonable, approach to forecasting your potential ad impressions. It is very likely that some of your site’s visitors will use ad blockers, and that for one of a million reasons, that some ad calls simply won’t be successful – and there are a lot of ad calls between a website and an advertiser to go wrong.
Due to this, I generally recommend assuming that you will lose up to 30% of all your potential ads.
You should also keep in mind that when you first add ads to your site you will likely lose some users, as some people will inevitably hate ads more than than they like your website.
I hope this helps,
A: “Hi David,
If you are running a branding campaign, then CPM (Cost Per Thousand Impressions) is likely the best ad pricing model for you. It simply means that you are paying to have your ads shown a set number of times, and if you are only concerned with people seeing your ads this can make sense. It is generally an option reserved for very large advertisers however, as smaller advertisers will mostly want to see direct results back from their online ads.
This means that most of the time CPC advertising is a much more advantageous ad pricing model for an advertiser than CPM. With CPC advertising you know exactly what you are getting – clicks.
With CPM advertising you could frankly be getting absolutely nothing in return for your ad spend. All you are paying for is to have your ads shown a certain number of times – there is no guarantee that anyone will ever actually see your ads or interact with them in any way.
The key thing is that both of these ad pricing models, you will get what you pay for – clicks or impressions. So on the surface, it would seem that paying for clicks is a no-brainer for all but branding campaigns.
However, this simple analysis ignores two of the main components which drive everything in advertising these days – algorithms and greed (for want of a better word). Because of the combination of these two things, there is in fact a mathematically perfect time to switch from CPC to CPM advertising.
[Greedy Algorithms are a whole thing – choosing the best solutions in the short run doesn’t necessarily mean the best solution in the long run. Read about it on Wikipedia if you’re interested]
How algorithms (basically) work for CPC campaigns
If you pay for clicks, the algorithm being used by whatever ad platform you are on will do its best to give you those clicks. The algorithm, however, will focus on making money for the ad platform first, and fulfilling your order second. This may sound nefarious, but think about it – if it were your ad platform and your algorithm, isn’t that what you would want it to do? It is a business after all.
Anyway, as you will not be the only person looking for clicks, it will also take into account how much you are paying for those clicks, and how easy it is to get those clicks.
For example, if you set a maximum CPC of $1 on one ad campaign and $2 on another ad campaign running the exact same ads, then the $2 campaign will get shown first by the algorithm in the hope of earning that sweet extra buck.
Similarly, if you have two ad campaigns targeting the same set of people or pages, and one has a 1% CTR and the other a 2% CTR, then it is likely that the 2% CTR one will be shown first as they are more likely to get a click (and therefore money for the ad platform faster).
In both these cases, the ad which is is shown first is more likely to be clicked as that is just how advertising (and people) work.
To Summarise if you pay more money, or run more compelling ads, you will more clicks faster.
The problem with how algorithms (basically) work for CPC campaigns
While the above all seems fair enough, the key point is that the algorithm is working to maximise money for the ad platform, not to maximise your ROI. This means that there is a third thing it is taking into account – how many ads are served.
Algorithms try to deliver CPC ads as few times as possible in order to generate the requisite amount of clicks. This is because ad impressions cost a tiny fraction of a penny – which means nothing to you but which ads up substantially if your whole business is advertising.
To show your ads as few times as possible a CPC algorithm will make sure your ads get shown where they are most likely to get clicked. So far so good. However, it will not care about the quality of those clicks. While ads with higher CPCs and higher CTRs are already getting preferential access to potential clickers, the algorithm still has enough wiggle room to squeeze a bit more profit out of your ad spend.
It can do this by cutting down on the types of people that your ad is shown to.
Imagine you are advertising a Garden Centre, and you target CPC ads at anyone who is interested in any type of plant. The algorithm will test your ads against the selected audience, and whichever subsection of that audience performs best – say, daffodil lovers – will get shown your ads far more often.
The result is that you get a high CTR, and possibly lots of customers too. However, while you (reasonably) think that your advertising is targeting a wide variety of plant lovers, you may find that you continually sell out of daffodils but little else.
Again – there is nothing nefarious about this – you asked for clicks and you got clicks.
You are getting only the exact amount of clicks you asked for (and no more), but your targeting choices are being treated more like suggestions than decisions. Because of these reasons, CPM advertising *might* be a better option for you.
With CPM advertising your whole audience will likely be shown your ad, and the potential for clicks is unlimited.
[This second point might not seem great, but consider the example above one more time: on sunny days people are more interested in gardening. By not limiting the number of clicks you are paying for you can automatically take advantage of changes in demand outside of your control (without changing your ad budget).]
When should you switch from CPC to CPM advertising?
The easy answer is simply that you should switch when you can get more/better clicks for less money from CPM advertising.
I can’t deal with the better clicks side of things (and if you really want better clicks, you should be running a CPA campaign anyway), but I can give you a formula that I invented to work out where the tipping point is between CPM and CPC being the best deal for you:
When your eCPM is less than your CPC x CTR x 10 then you should switch from CPC to CPM advertising
With a CPM campaign set at this level, you get the advantage of paying less than what you otherwise would be (assuming your CTR holds). You also get the advantage of potentially unlimited clicks! You can ensure the quality of your audience too by adding a frequency cap (of 3/24) so that no-one sees your ads too much, and by trying to target above the fold placements.
Of course, the problem is (as stated at the beginning of my answer) that there are no guarantees with CPM advertising. You could get nothing back from it at all. In truth though, there are three things stopping this from happening:
- Ad Platforms want your repeat business, so they will almost certainly be optimising your CPM campaigns at least a bit.
- If you have been sold ad space by a salesperson then you can tell them your CTR expectations. They want your repeat business too, so will push to get you that CTR – and if they don’t then you can complain and they might give you some free ad space to keep you happy.
- You can optimise your campaign. While your CTR on a CPM campaign might start off worse, you already know that your campaign can perform well. If you look at your reports then you can add more ad spend to the best performing places, and reduce spend to the worst-performing ones.
Whatever happens, make sure to keep an eye on your stats and optimise your campaigns. In many cases, it will make sense to shift over slowly – have a CPM campaign running alongside your CPC campaign to start with, and optimise your CPM campaign until it is the more cost-effective one.
If you are just getting started and want some tangible results, then CPC advertising is probably for you (although CPA advertising is far better if you are looking for results which aren’t just more traffic to your site).
If you have CPC ads which are doing well in terms of CTR, there will come a point where CPM advertising makes more financial sense than CPC advertising. Use the above equation (or calculator) to check to see if you have hit this tipping point and when you do – tread carefully.
I hope this helps,
See you next month,