Upfront Payment: Obviously, the best possible arrangement is demanding up-front payment from the advertiser, and refusing to run any advertising until the payment has “cleared.”  Unfortunately, since the advertiser is also uncertain about whether the publisher can deliver on its promises, it’s difficult to convince any advertisers to pay in advance.

Escrow Funds: Some affiliate networks require that advertisers pay in advance into a fund which is used to pay publishers. These are not true “escrow” arrangements, and there is always a risk that the network might default. But this arrangement does provide a reasonable level of assurance to publishers: ShareASale actually disables advertising links if the advertiser’s account is depleted.  Unfortunately, some networks claim to require pre-payment, yet allow advertisers to continue even after funds are depleted — in effect, these networks are extending credit to the advertiser on behalf of the publisher. Today’s post involved Commission Junction, which has often informed publishers after the fact that an advertiser’s account was depleted weeks earlier, leaving no funds to pay the publisher.

Trusted Intermediary: Of course, using a “trusted intermediary” (like an ad network or affiliate network) does create some additional “security,” even in the absence of prepayment or “escrowed” funds.  An unethical advertiser might choose to default on promises made directly to individual publishers, but they’re less likely to “burn their bridges” with an entire network.

Network Promises Payment: In a few cases, ad networks actually pay for advertising even if the advertiser defaults. Google’s AdSense program doesn’t withhold payments to publishers, even if an advertiser defaults on its payment promises. Of course, there’s a price — these networks take a larger percentage of gross advertising revenue, and Google especially is not transparent about its revenue-sharing (as a publisher, you don’t really know if you’re getting 10% or 50% or 80% of the amounts actually paid to Google for advertising that appears on your site).

Due Diligence: Before you “extend credit” by carrying advertising, do some basic homework. Go to the advertiser’s web site, and see if there is meaningful information: does the advertiser display a privacy policy, an “about us” page, and a “contact us” page? Does the web site disclose a physical address (other than a “mail drop” address)? Telephone number? Names of the company’s principals (CEO, President, etc.)?  Try calling the phone number — if it’s not answered during regular business hours, you should be concerned.

Do you clearly understand who you are extending credit to? (Is it a corporation or LLC, or an individual, or perhaps there is no indication about what kind of business it is?) One strategy is to request a signed advertising contract, or at least a written letter signed by a specific person (whose contact information is included).

If It Sounds Too Good to Be True, It Is! Not “probably” — if it sounds too good to be true, it simply isn’t true.  The publisher who posted on ABestWeb today indicated that he was promised $16 for each “free trial” enrollment for an MP3 music subscription service. That’s ridiculous; when I researched, I found a current offer by the advertiser promising a maximum of $14 per paid subscription, which seems fair for a $10 per month subscription service.

Link: DADA.net Owes Me $40,640 And CJ Is Doing Nothing To Help” (ABestWeb discussion thread)

But I almost always recommend using AdSense as the first advertising solution for new web publications (sites).  The reasons are simple:

• AdSense is a “known factor,” familiar for all parties (web visitors, web publishers, and advertisers);
• It works at generating revenue (though at a very low level);
• You can “set it and forget it,” focusing your efforts on creating content and attracting traffic; and
• AdSense proves very credible and consistent reporting.

Of course, web publishers must use AdSense (and other advertising options) wisely. In most cases, this means only a single advertising “block,” visually separated from your site content — usually in the form of either a “leaderboard” (a 720×60 horizontal ad across the top of each web page) or a “skyscraper” (a 120×600 or 160×600 vertical ad displayed at the right edge of each web page.  In my view, it’s “unwise” to insert more than one AdSense block, and it’s also unwise to place AdSense ads “below the fold” (so that only users who scroll down the page will see the ad).

Many web publishers are alarmed when they first add an AdSense block to their web pages, because they first see only “public service” ads, and then they see many “bizarrely off-topic” ads (often for dating and people-finding services) for several days.  Be patient: if your web pages have reasonable “search engine optimization,” Google will quickly identify the subject and audience, and will soon start displaying relevant ads.  (Not “ideal” or “very-well-matched ads,” but merely “relevant.”)

Note that there are many strategies to improve the “focus” of advertising that appears on your web pages” and also to maximize AdSense revenue; but this isn’t an article about “optimizing your AdSense revenue.”

In my experience, AdSense revenue for a site will “correlate with” the advertising-revenue opportunity that may exist from other sources.  I’m not comfortable stating a specific “ratio,” but I’ve often found that once I start integrating other types of advertising, I can increase my advertising revenue by three to ten times.  In other words, if one of my sites is earning $10 per month from Google AdSense, I doubt that any amount of effort will bring in more than $100 per month for the same traffic.  (But I do recall once site which earned less than $1 eCPM for several years, all from AdSense, but when I re-evaluated the site and added other advertising, the AdSense eCPM doubled, and total advertising revenue rose above $15 eCPM in just a few months.)

How much will you earn from AdSense?  The answer is, “it depends.”  There are many factors that impact the effectiveness of advertising on your site, and the revenue you might earn from AdSense advertising. Obviously, “relevance” is critical — if AdSense can’t quite match up ads that are a close match to your site’s topic and audience, you’re unlikely to earn much money, no matter how much traffic you attract.

As a web publisher, you should evaluate the performance of advertising on your site by computing the “effective Cost Per Thousand” adviews or “eCPM” (“M” is the Latin symbol for 1,000)).

The eCPM will vary considerably with your topic, the demographics of your audience, and their “mode” when visiting your site.

Unfortunately, if your web site has a topic and audience that isn’t highly valued by advertisers, you won’t earn much money. Indeed, many high-traffic web sites earn less than $0.10 eCPM (e.g. less than ten cents for every 1,000 adviews), and some sites have eCPM below one cent. Most web sites earn less than $1 eCPM (less than one dollar per 1,000 adviews).  Most of the largest, most famous web sites earn significantly less than $10 eCPM, although specific sections of these sites may draw significantly more (or less).

Regardless of your site’s topic and audience, however, another critical factor is the “mode” of your visitors.  Are they seeking entertainment? Are they trying to complete a specific process? Are they researching to buy a product?  It shouldn’t surprise you that this last “mode” is likely to draw the most advertising revenue. You might be surprised to realize that visitors engaged in a “process” are often the least valuable to advertisers — because it’s hard to distract them from that “process.”

This means that even if your web site is about “digital cameras” (a “hot topic”) and your visitors are affluent people who are interested in digital photography (a desirable audience), you still might not earn much advertising revenue — unless your visitors are engaged in an activity that’s likely to lead to a purchase decision. Thus, a web site comparing the features and flaws of different digital camera models (of interest to someone considering a purchase) might draw a relatively high eCPM, while a web site about “making the best use of auto-zoom” or “tips and tricks for taking good digital pictures” would draw a lower eCPM because those readers probably aren’t seeking to buy a new camera, and they are in a “learning” mode, not a purchaing “mode.”

There is also generally an “inverse relationship” between a site’s breadth and its eCPM.  A site that covers a broad range of topics usually has a lower eCPM than a web site that has a single narrow topic.  Of course, a site with a narrow topic usually has a smaller audience.

It is extremely unrealistic for 99% of web publishers to expect to earn more than $10 eCPM, and for most web publications, an eCPM of $2 to $3 is the highest realistic aspiration.  It’s also common for sites to see significant variations in their advertising revenue: $2 eCPM one year, $9 eCPM the next, and then only $3 eCPM the next year.

Moving Beyond AdSense: At some point, you will probably want to consider other advertising options, besides Google AdSense.Sometimes there are very specific advertising opportunities that “make sense” during a site’s development, or very soon after a site is launched.

For example, if I create a web site about scrapbooking, I might decide almost immediately to add “affiliate links” to Scrapbook.com, Scrapbook SuperCenter, ScrapbookPal, or Two Peas in a Bucket — perhaps right below the AdSense block in the right margin.  And if I write about specific products, I might make the effort to include specific affiliate links for consumers who may wish to buy those products from one of these merchants.  (With an “affiliate link,” the amount you are paid for the advertising exposure is based directly on sales — if a customer clicks an ad on your site and then purchases from the merchant, you are paid a percentage of the transaction.)

You might also consider “diversifying your advertising” by alternating ads from two different ad networks (usually AdSense plus another network).  You would allocate more “inventory” to the network that pays more, yet maintain an active relationship with the alternate network just in case performance plunges at the first.

Site Size: I generally recommend that web publishers not devote much effort to “selling advertising” (or optimizing advertising revenue) until a site draws at least 10,000 visitors per month (and for some types of sites, 100,000 visitors per month).  Do the math: if a site has 20,000 visitors per month and is earning an eCPM of $1.50 from Google AdSense, that means total revenue is just $30 per month. Even if the web publisher is confident that advertising earnings could be tripled, she must ask herself whether the extra earnings will be worth the time required to optimize the advertising!

• On July 15, 2009, a New York plastic-surgery firm agreed to pay a $300,000 fine for “astroturfing” — paying employees to post fabricated positive reviews and “endorsements” of the firm on a variety of online forums and web sites (“NY AG Cuomo Gets $300,000 From Company For Posting Fake Reviews“).

• Earlier, on June 21, 2009, the FTC announced that it will investigate and monitor whether bloggers are improperly publishing comments and reviews without disclosing payments from companies (“FTC plans to monitor blogs for claims, payments“).  This “consumer-protection” effort shows serious misunderstandings about journalism and the First Amendment, but more attention will definitely be focused on deceptive practices.
  

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The issues are not simple, and unfortunately some merchants misunderstand the problem.

First, it’s easy to get caught.  Competitors and citizen-journalists are everywhere, increasingly skeptical of reviews and commentary, and increasingly capable of tracing the origin and authorship of “anonymous” or “pseudonymous” writing.  But this is the “wrong focus” for discussions on this topic, because ethical marketers don’t need to worry about “getting caught,” if they’re doing nothing wrong.

Instead, the “right focus” should always be on proper strategies to serve our clients.

I think I’ve “tuned in” to this issue because for over past decade, I have urged many clients to consider creating or sponsoring “captive affiliate” and/or “stealth affiliate” web sites.  A “captive affiliate” is a web site which provides information or services which are “complementary” to the client’s business, and which are clearly owned or “sponsored by” the client.  A “stealth affiliate” is similar, but the client’s ownership and control of the site iis not disclosed. When I’ve discussed this with clients, I always make clear that a “stealth affiliate” web site can never include “reviews” or “endorsements” of the client’s business, because that would be a deceptive practice.  I won’t work with deceptive or unethical clients.

Usually, the idea for a “captive or stealth affiliate” starts with a statement that starts, “somebody ought to create a web site about….”  Sometimes, there are existing some sites but they are poorly written, or they’re confusing because they’re written for a specific audience.  Sometimes, there simply aren’t any web sites on the subject.

I speak up when the client moves from “somebody ought to …” to “maybe we should ….”  First, I remind the client that the business must not lose focus — if the company plans to sell widgets, it doesn’t really matter that there’s a great opportunity for someone to create a separate web site about “101 uses for a widget” or “understanding the differences between widgets and fromitzes.”  Then, I’ve sometimes suggested the option of creating or commissioning a separate web site to meet the need that the client has identified. (I usually also suggest a third option: encouraging someone else (perhaps an existing affiliate) to create the web site.)

But I strongly emphasize that neither a “captive” nor a “stealth affiliate” should ever include a review or endorsement.  A “captive affiliate” (with the sponsorship disclosed) might contain language and images which favor or support the client’s mission and business, but a “stealth affliate” would always need to be scrupulously neutral and objective.

Some of my clients have created “captive affiliate sites.” Sometimes, the ownership is clearly visible on every pagel; on a few sites, the ownership is “not prominent, but adequately disclosed.”  I actually don’t believe that any of my clients has ever created a “stealth affiliate site.”

This summer’s developments have let me to reconsider the concept of a “stealth affiliate,” in part because of the risk of “over-reaction.”  But I probably should have abandoned this advice several years ago, after I realized that most of the stealth affiliate sites that I encountererd “in the wild” were deceptive.  Over the past decade, I’ve discovered dozens of “stealth affiliate” sites — where the ownership or control is concealed, but I become suspicious because of biased language or factually-unsupported endorsements, leading me to do some research and eventually uncover the site’s true ownership.  I’ve discovered only a few legitimate stealth affiliate sites (although by definition, a legitimate stealth affiliate site should not trigger my suspicions).

Occasionally, one of my clients will decide, midstream, that one particular metric is especially important. Often it’s “raw CTR” or “raw conversion rate.”

The problem is that the only metric that really matters is profit.

There are many campaign adjustments we can make that will improve profits while pushing “intermediate” metrics downward. For example, if a PPC client uses Google AdWords but hasn’t been using the Content Network, and I find a way to profitably add Content Network campaigns, the average CTR will drop but of course this is OK if profits increase (generally, the “cost per click” and “cost per conversion” decrease and overall OI/ROAS increases).

But any metric can be abused. For example, I’ve seen companies that focused incorrectly on “cost per conversion.” They start with good logic: their “average transaction size” is $75, and they earn $40 gross per transaction, so they can afford to spend $20 per conversion. But then they don’t close the feedback loop by monitoring the average transaction size, and soon they are paying $20 per conversion but they’re not making money because their average transaction size has dropped to $35.

When clients approach me with “cost per lead” as their desired metric, I tell them up-front that they can’t stop there — any cost-per-lead campaign absolutely MUST include additional elements (such as conversion rate and average transaction size), or else the CPL campaign will bring in poorer-quality leads every week (not necessarily invalid leads, but competitors will cherry-pick the best leads by tracking and paying more accurately for them). Of course, nearly all clients who seek to hire me on a “cost per lead” basis don’t have effective post-lead tracking (often, the leads are handed off to sales staff who won’t follow through on any follow-up required for tracking, or they’re resold to others).

In the affiliate-management space, I assume that there are folks out there who are measured or compensated based on all sorts of “intermediate metrics,” such as “average sales per affiliate,” “percentage of affiliates activated,” or even absurd metrics like “effective CPM” or “cost per click” which don’t make sense in the affiliate-marketing space.

Imagine the dilemna faced by the second-hired “Affiliate Manager” in a firm. When the existing affiliate base was “split” by the original Affiliate Manager, she kept all the affiliates with whom she had built a strong relationship, and therefore the new guy ends up with all the poorest-performing affiliates. Then the boss turns around and says, “She is managing 6,000 affiliates, who generate an average of $Y in in sales; you are managing 5,000 affiliates, who only generate an average of $Z in sales. If you can’t improve that measure, we need to look for someone else for this job.” What would you do, if you wanted to keep your job? (Bye-bye, non-performing affiliates.)

Measurement is an absolutely critical component of nearly all online marketing; relying on the wrong metric is a common, expensive mistake.