Question

Each advertiser is bidding $3 CPM. Is this a good idea? For which advertiser it makes sense and for which it doesn’t? Fill out the blank parts of the chart and provide reasoning.

	Advertiser 1	Advertiser 2	Advertiser 3
CTR	0.8%	0.7%	0.6%
Conversion Rate	2.3%	3.1%	1.9%
Profit per conversion	$15	$20	$30
CPM	$3	$3	$3
CPC
CPA

Answer 1

Solution:

For reasoning for the best advertising decision, we have assumed a case of 1000 impressions, and calculated the various values as below

	Advertiser 1	Advertiser 2	Advertiser 3		Advertiser 1	Advertiser 2	Advertiser 3	Comments/Formula
				a) No. of impressions	1000	1000	1000
CTR (click through rate)	0.80%	0.70%	0.60%	b) No. of clicks	8	7	6	(a)*CTR
Conversion Rate	2.30%	3.10%	1.90%	c) No. of conversions	0.184	0.217	0.114	(b)*CR
Profit per conversion	$15	$20	$30	d) Total Profit	$2.76	$4.34	$3.42	( c) * Profit per conversion
CPM (Cost per Thousand -Mille)	$3	$3	$3	e) CPM (Cost per Thousand -Mille)	$3	$3	$3	Given
				f) CPC (Cost per Click)	$0.38	$0.43	$0.50	(e)/(b)
				g) CPA (Cost per Acquisition)	$16.30	$13.82	$26.32	(e)/( c)
				Return on Investment	92%	145%	114%	(d)/(e)*100

From the above table, we observe that the return on investment is positive for all advertisers, thus a CPM of $3 makes sense for all of them, but the best ROI would be for advertiser 2.