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Projecting Online Ad Revenue – A Guide for Tech StartUps

Posted by David Sonn on November 18th, 2011 at 6:36 am

As a consultant to tech startups, I’ve seen entrepreneurs planning online ventures confused when it comes to projecting advertising revenue. Having done ad projections with the benefit of live models from which to extract real data, I offer the following guidelines on how you can calculate revenue projections for your business plan.

Baseline Criteria:

Let’s assume that for Year One you will only use third-party ad-serving networks, instead of direct selling. This is as simple as adding their code snippets to your pages, to automatically feed their ads to your site.

Because it’s rare to find one service that can fill all your inventory, I recommend a primary service and a backup service. I also like to use a combination of two ad types: CPM (revenue earned per 1,000 ad views) and CPC (revenue earned per click). For the sake of these sample projections, however, we’ll focus solely on CPMs, as it’s easier to calculate.

In terms of ad providers, I’ve used Contextweb for CPM and Google AdSense for CPC. There are plenty of others to consider, but you may have to qualify for their minimum page view requirements, and that may not come until later.

Year One Assumptions:

  • 2 CPM ad slots per page
  • 80% of your inventory filled (a common percentage with a 2-service approach)
  • $1.20 earned per 1,000 pages viewed

You start by projecting monthly page views. Hopefully you have a beta site or some similar sites where you can review the average page views per visitor. If not, Compete.com will let you compare the number of monthly visitors for similar sites.

Depending on the type of site content, pages per visit can generally average as low as 2.5 to 3 pages per new visitor and between 8 to 10 pages for a repeat visitor. These numbers are based purely on my own experience managing sites.

Once you have a projection of monthly total page views, it’s time for simple math:

Total Page Views divided by 1,000 x $1.20 = Revenue Earned

You now have revenue projections for Year One.

Future Years:

When projecting revenue over Years Two through Four, increase your $1.20 per 1,000 page views first to an average of $3 CPM, then ultimately to a maximum average of $10 CPM. These are general guidelines and it’s best to be conservative.

To accomplish these increases in CPM rates, you may want to approach one of the larger or specialized ad networks to begin selling your inventory directly, or to even hire an outside sales team. You could approach a firm like 24/7 Real Media to employ their ad serving management tool and sales representation. You may want to contact them now and get their input as you start your projections.

As you build traffic and dramatically increase ad inventory, you will also want to analyze the benefits of adding an in-house salesperson or staff, with the goal of earning higher profit margins and providing better service, especially for advertisers coming to you directly. The base expense per sales person will range from $50,000 to $100,000 depending on the industry, location, compensation package offered, and the advertising and marketing support required. This does not need to completely replace your outside sales solution.

I hope this is helpful for those of you hard at work on a business plan for the next great dot com. I’d be curious to hear the input of others, those experienced in the ad selling game, to further this conversation.

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