Mathematics of Banner Advertising

By Posted 2004 Updated   Advertising

How to calculate the cost-per-visitor, cost-per-sale and return-on- investment ratios. These terms seem confusing to a lot of new bloggers starting out and deciding to display advertising on your site. Whichever advertising program you opt for, these terms are bound to guide your decision about which ads to use.

Lets see this example –

  • If a web site charges you $20 per thousand impressions ($20/CPM), and you get a 2.0% click-through (20 visitors), your cost-per-visitor is $1.00 ($20 / 20 visitors).
  • And if 1 in every 10 visitors buys your product, your cost-per- sale is $10.00 ($20 / 2 sales).
  • So if each sale of your product produces a gross profit of $15, then your net profit per-sale will be $5.00 ($15 gross profit – $10 cost-per-sale).
  • Your return-on-investment (ROI), before non-marketing expenses, is 50.0% ($10.00 total net profits / $20 investment).

Looks profitable! Keep these advertising parameters in mind and you would be able to make more money online easily.


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