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Can you estimate the effectiveness of online ads?

A mentee I'm advising is trying to figure out how much to spend on online ads. His product is a loyalty program in the food & beverage space. A quick google search reveals there are wildly different estimates about how many impressions ended up being clicked on (I'm thinking 2.5% for ads for this app), and even less information about how likely a click is going to lead to a sale. Anyone care to provide an estimates that won't be teared apart by investors?

4 Replies

Roger Wu
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Roger Wu Entrepreneur
co-founder at cooperatize, native advertising platform
this is the question of ad tech attribution. would you say that the only ads that are worth buying are the ones that people click on? (sometimes, by accident) or would you rather have an ad that makes someone say "Oh yeah!" and then read some reviews, and then lead to a purchase? Unfortunately, if you are using a CTR for a financial model, it will get torn apart. Rather, just have a straight line item "Advertising" and don't attribute it.
Shobhit Verma
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Shobhit Verma Entrepreneur • Advisor
building an adaptive recommendation engine
For B2B it will be more about direct selling rather than digital marketing.
If you are going B2C, the leanest method to get these estimates is tojust run a campaign with a small budget ($200) and run on facebook/google.
You will need a landing page, you will need the product description as well as a buy button. (The buy button doesn't have to work .. just take them to a 404 page not found page ). It is OK to disappoint potentially 10 future customers at the most, but you will get real data about real behaviors( For example if nobody ever clicks the buy button!! )
Dimitry Rotstein
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Dimitry Rotstein Entrepreneur
Head of R&D at SafeZone
There is no specific figure for conversion rates, if that's what you're talking about. I've run a few campaigns on social networks, and got CTR between 1/700 and 1/8, with visitor-to-client conversion from 1/100 to 1/3 (non-paying clients though). In general any conversion rate can be anywhere between 0 and 100%.
It highly depends on the product itself, the marketing message, targeting, platform, etc. The only way to know is to try - there is no real alternative to an experiment here. Fortunately, running a trial campaign is very easy and cheap these days. Also, you can increase conversion rates significantly, but that takes time, hard work, and creativity.
If, however, for some reason you need a number urgently, then assume a CTR of 1% and visitor-to-paying client of 1%. In my experience, that's a reasonable order of magnitude "guestimate". I think Facebook charges something like 20 cents for a 1% CTR, so that would be 20 dollars per paying customer. The average Life-Time-Value of such customer would probably have to be over 60 dollars to make the business model work.
Algis Aukstuolis
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Algis Aukstuolis Entrepreneur
Advertising Professional | Digital Account Manager
I would recommend setting aside some budget and running a test. There are a lot of variables that contribute to the cost per acquisition of a campaign (targeting strategy, landing page, vertical, etc), and you won't really have a good idea of what you can do unless you set a baseline. To set up this test, run some ads on any programmatic network (AdWords or BingAds is best for lead gen, but things like Facebook also work) and lead it to a landing page with a contact form. Make sure you have conversion tags set in place so that you can report on conversions for your campaign. Then when you pull a report you'll see your spend, and the number of form fills. Then based on that number and your closing rate after contacting a customer, you can arrive at a cost per acquisition baseline for your investors.
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