Colorful Little Boxes

Talk to people slightly familiar with digital advertising and you’ll hear “oh, yes, response rates are low.” Everyone knows most people don’t click on display ads, that websites face a glut of banner inventory, that those colorful little boxes promoting vitamins at the side of NYTimes.com don’t really work at all.

Except this isn’t true. Digital advertising response rates are terrific, and I’ll explain why in just a few words:

  1. Strategically, advertising is a game of what you catch, not what you spill. If you pay for ads that are seen by thousands of people, and only a few respond, all that matters is what you pay for response. You got on a vast road network to drive to work today, and yet you ended up in the office, missing all those other roads. Like driving, all that matters in advertising is the result, not the miss.
  2. Tactically, in most cases, digital advertising outperforms TV, radio and print in terms of the percent of people who saw the ad who then respond.
  3. Here’s the math. If you spend $3.50 CPM (cost per 1,000 impressions) for online display ads, a $100 media budget gets you 28,571 impressions. If you have the standard click-through rate on those ads of 0.07%, you get 20 respondents. Your cost per response is $5.00.
  4. By comparison, a typical radio ad has a $35 to $50 cost per response. Radio costs about $7.00 CPM, so if you reverse engineer the same $100 media budget in radio, you get 14,286 impressions — and your response rate to achieve a $35 response would be 0.02%, far below that of digital ads.

The same goes for television. Go home tonight and turn on your TV, and if you’re a typical American, you’ll leave it on for nearly 5 hours — being exposed to 160 television ads in one day, or about 5,000 ads per month. If you respond to 3 of those TV ads each month, and I bet you don’t, that’s a 0.06% response rate — not quite as good as little banner ads.

Direct mail has higher response rates, but it also costs a lot more on a per-thousand basis. And the response cost is higher than digital — a 1.3% average response for a 50-cent mailer costs you $38.

Understanding why digital beats other media in cold, hard response evaluation requires math, yes. But you get the gist. Most advertising never catches anyone. But that doesn’t matter, because as in love, marriage, kisses and fishing, all that counts is what you catch.

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