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As an internet startup, how do I project advertising income?

How do I realistically estimate year one advertising income for a startup? What sources can I draw upon for comparison? What metrics can be used to build on income after the first year?
Steve Adams answered August 25, 2009
URL: http://www.entrepreneur.com/answer/221971

Forecasting revenues is tough at any time, and so much harder for startups. Rather than trying to find a precise number, it's often easier to develop a range--bookends of high and low projections.

Web advertising is typically paid for in one of two ways:

* Impression (CPM ) based: Advertisers pay to have their ads shown to your visitors, and pay per impression. The CPM (cost-per-thousand impressions) varies dramatically depending on the value of your audience; it can range from pennies to hundreds of dollars or more for niche audience.

* Performance (CPA) based: Advertisers pay only when a site visitor completes an action (fills in a form, purchases, etc.)

A revenue model for impression-based advertising would look like:

# ads per page * # pageviews * CPM

A revenue model for performance-based advertising would look like:

# ads per page * # pageviews * (% that take action) * CPA

Obviously you make more if you have more ads, but at the risk of driving away your visitors.

The common element is that if you have a lot of good quality traffic then advertisers will be more interested.

Steve Adams is vice president of marketing for Protus, a provider of Web-based services for small- to medium-size businesses. He is a seasoned industry speaker having spoken at a variety of telecommunication trade shows and conferences. He is a graduate of the University of Waterloo and the Ivey School of Business.