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On the web it is possible to get links to a website placed on other sites. Some links are free and others cost money. Often people are encouraged to bid on the ad placement on various sites. One way to determine value is to look at how much people are willing to pay, but when bidding we would like to know how much we should be willing to pay. There are several sites that make it possible to determine the value of a link, but they often use a type of behind the scenes magic that does not take into account the value of the link to an the owner of the website to which it is linking. One such website recently placed the value of a link on www.yahoo.com at $7,061.25, and www.fortworthbaptistchurch.org at $14.57. That is nice, but I would not be willing to pay $7,061.25 for a link to any of my websites and www.fortworthbaptistchurch.org is not selling ad space. These values are totally meaningless.
Let’s look at another way to determine how much a link on a website it worth. As we do so, our main concern is how much value we receive from the link. It doesn’t matter how much other people are willing to pay, if we do not receive enough value from a link on the site then there is no reason for us to think that a link is worth that much.
Below is a list of terms that are used in calculating the value of a link.
The simplest way to state the calculation of the VPC is to state that it is the P(goal)*VG. The P(goal) may be equal to the P(sale), since sales is often the goal of a website. The VG may also be equal to APS. For now, let’s assume that they are and take a look at an example.
Example 1:An artist has a website on which she wishes to sell hand crafted jewelry. She makes $1 on every item she sells through the website. She has determined that 5% of the visits to the site result in a sale. By multiplying $1 and 5% she determines that she cannot afford to pay more than 5 cents per click.
Example 2:An attorney is seeking clients to file a claim against a company that makes peanut butter. He determines that 1% of the people who click on the ad will sign a contract. He estimates that when all expenses are considered, he will make $1,000 profit on each contract. By simple multiplication, he determines that he can pay as much as $10 per click.
Not all adds are sold by the number of clicks. Some sites sell ads and links by the number of impressions. To calculate the value per impression, just multiple the Value per Click by the Click Through Rate. Let’s look at another example.
Example 3:The attorney in example 2 wishes to place his ad on a site that charges by the number of impressions. He ad campaign records show that for every 100 impressions, 5 users click on the ad. This gives him a CTR of 5%. Multiplying the CTR by the $10 per click that was calculated above shows that he should not pay more than 50 cents per impression. It should be noted that using the same figure for Example 1 would indicate that the artist should not pay more than 0.25 cents per impression.
Using the method that is shown above, the value of a link on a well known site like www.yahoo.com and a little know site does not appear to be different. Before you dismiss the method because of this, consider that the real value in having a link on a well known site is in the fact that is increases the number of impressions that are made, but each impression is viewed by one user, so the value per impression is no different on a site that is viewed by millions and one that is viewed by hundreds. In fact, an impression on a niche site may have a higher click through rate than an impression on a more general purpose site.
If you want to get an idea of how much placement on a well known site is worth then you can use the traffic number for that site and once again multiply. Suppose a site gets 10,000 visits per day and an ad is placed above the fold. If it is an ad placed by the jeweler above and the numbers hold up then it would be worth $25 per day. A site that gets 50 visits per day would only be worth twelve cents per day. The numbers are not guaranteed to hold up, because a 10,000 visit per day site is likely to have a broader audience than one that gets 50 visits per day.
In the calculations above it was assumed that the goal was to sell something, but what about when the goal is something else. Church websites are an example of this. Most church websites have different goals than selling something. Church websites might have a goal of getting people in the pews, so a link placed on another site might have the same goal. It might also be the case that the link on another site really has no other goal than to get people to visit the site. There is something great about seeing more and more people visit a site, so a webmaster may be willing to pay to see this happen. If the goal is to get people into pews then P(goal) may be very low. Instead of 1% it may be more like 0.1%. If the goal is to get people to visit the site then P(goal) is essentially 100%.
Now consider the value of the goal. Despite popular belief, getting a visitor at church is not of infinite value. It may not be easy to put a value on it, but it is not an infinite value. Maybe the best way to put a value on the goal for the link it to compare it to other methods. Suppose a church does mailings and gets a 2% to show up at church. If the mailing costs $1 per address then the cost per response is $50. So, to get the same response through the internet is worth $50 each. This gives us a Value per Click of five cents. If the goal is to just increase traffic to the site then the question become just how much a person is willing to pay to boost his ego.
If your goal is to make a profit then you will need to make sure that you stay before the value you calculate. The calculated value is the break even point. If the bidding pushes the price above that point then paying the price will result in a loss. Free links are ideal, but paid advertising can work as long as the price is kept low enough to be covered by the sales.