Click-Throughs and ROI? Get the Facts

When God created ad banners, he also created the click-through rate, the holy measurement grail of online advertising. Today, as the industry watches click-through rates plummet to 0.5 percent, marketers are once again wondering, “Where is the return on investment in online advertising?”

Despite the Internet’s promise of accountability and instant optimization, a panicked industry has abandoned click-throughs in search of other merits like branding or transaction rates. Hello? Last time I checked, you still needed to respond to an ad before actually going on to buy the product.

So why have ad banner response rates taken a nosedive? Theories abound. Some say the sheer number of ads is now so large that consumers “don’t see them” anymore. Others attribute the high CTRs of the past to the “gee-whiz” factor of a new medium. I heard my favorite recently – bands of anti-corporate Web surfers are taping 10-inch cardboard strips over the top of their monitors. Ouch.

Now I’m not arguing with any of these hypotheses. But my question is – who cares? The real problem with click-through rates is that the math is wrong.

Click-throughs were the online world’s response to marketers’ early demands for information about the performance of their advertising. Attempting to meet advertisers’ ROI needs and “prove the medium,” early Internet publishers lifted a simple calculation from the direct response industry. They counted the number of clicks that each banner received and divided that by the number of ads “delivered to” consumers, or impressions.

With CTR, advertisers had more ROI data than they’d ever had before, and publishers were armed with proof of the medium’s effectiveness. It was a win-win for everyone, which is probably why nobody bothered to check the math.

The first thing that advertisers and their agencies must do is toss their current CTR numbers and look at how many unique people are reached by a campaign. Without knowing exactly how many individuals saw your advertising, how could you possibly know the effectiveness of your ads?

For example, few people argue that to calculate the response rate of a direct mail campaign you count the number of people who responded to the mailing (respondents) and divide it by the number of people who received the mailing (recipients).

With Internet advertising, this principle has fallen by the wayside. Instead, media properties and ad servers report the CTR of each ad banner by dividing the number of clicks on a banner (clicks = respondents) by the number of impressions that were served (impressions = recipients). The problem with this formula is that one impression does not necessarily equal one person.

For example, if a media property served a particular ad banner 10,000 times (equaling 10,000 impressions) and that banner was clicked on 100 times, it nets a CTR of 1 percent. Now, the reality is that those 10,000 ad impressions may have reached only 5,000 unique people. Inconceivable? Just think about how many times you’ve been shown the same banner more than once while surfing.

While you may initially be alarmed at the value of your media spending, you might feel better about the effectiveness of your creative or media placement. Essentially, your advertising did 100 percent better than you had originally thought. Given that 100 people responded to the ad out of the 5,000 unique people that it actually reached, the response rate of the banner was really 2 percent.

Most media properties and networks report the CTR of each ad banner, button or link in a campaign but do not take into account the notion of recipients or people reached.

To calculate the actual reach of your online advertising, you must use a third-party ad server like DoubleClick, AdForce or AdKnowledge to centrally serve your ads on the media properties instead of relying on the sites to serve the banners themselves. Once the banners are served, you then must obtain raw campaign data from the third-party ad server to conduct the reach analysis. With a third-party ad server, a single cookie ID scheme is used to tag all users who either see or click on the ads in your campaign. This enables you to ultimately mine the raw data to determine exactly how many unique browsers were reached by your ads across all of your media buys.

If you are not using a proper CTR calculation, take a step back and reconsider. You are probably making key decisions on bad information. Once your ad response is measured by looking at the facts, not impressions, you can make informed decisions about your advertising, including mid-campaign optimization, and increase the ROI of your online marketing.

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