From the January 2001 issue of Startups

Web advertising is expanding faster than a lottery winner's circle of friends-up 69 percent to a whopping $6 billion in 2000, according to projections by New York City research firm eMarketer. If you've created a site that's drawing lots of traffic, why shouldn't you take advantage of that online advertising bonanza?

No reason, given you carefully consider the ins and outs of selling advertising on your site. The first thing to do is understand the basic Web advertising models. The banner ad is the standard Web advertisement, and you can charge people for placing banner ads on your site using the same pricing scheme practiced by the outdoor advertising industry, namely, how many people saw it. The difference is, instead of basing your advertising rate on the number of cars driving by a billboard, you can charge based on the number of impressions, or times an ad is rendered for viewing by visitors to the site.

The price you charge can vary from $10 to $100 per thousand impressions. The average cost per thousand (CPM) is approximately $20, according to David Hal-prin, senior analyst for eMarketer. The price variations are now explained in part by the desirability and specificity of the audience you can deliver to advertisers. Generally, an audience of, say, affluent computer equipment shoppers is more valuable to an advertiser than an audience of high school students looking for help on their homework.

The other main model for Internet advertising is based on click-throughs. With this model, you get a certain amount, generally ranging from about $1 to several dollars, for every visitor who clicks on a banner ad on your site and is linked to the advertiser's site. Big advertisers like click-through advertising because it's presumably based on results. However, it's possible for a high-traffic site to give valuable exposure to an advertiser but not generate very good click-through rates, so you're probably better off going with a CPM model.

Before you can sell anything, you have to know what you can sell. Your Web site hosting service can probably provide you with traffic analysis software that will tell you how many visitors you've had, what pages they viewed, how long they stayed and, with limitations, where they came from. This information, perhaps verified by a media verification organization like Media Metrix, serves as the basis for the ad rates you will charge.

Be warned that you need serious traffic to be much of an ad vendor, says Halprin. That said, there's no real minimum number of visitors needed to let you sell an ad, assuming they are the right visitors. So, in addition to knowing how many visitors you have, you need to know who they are. Detailed demographic information demonstrating that your visitors and the advertisers' desired markets match closely can make even a low-traffic site interesting to advertisers. Learn about your visitors by having them fill out online surveys and questionnaires.

Knowing just who to offer ads to is so important that many companies outsource this job to advertising bureaus, such as DoubleClick.com. However, if you are a small site, advertising delivery bureaus won't be very interested in you. In that case, you'd be better off handling your own advertising sales, says Halprin. Pitch local advertisers or specialty firms whose markets match yours, and offer to run their banners for a few hundred dollars a month. That way, you get a little extra revenue without the headaches of audits or the expense of paying bureau commissions and fees.

Done right, ad sales can help you pad your profits or slide through some tough periods, especially since online ad expenditures are expected to climb to a whopping $21 billion in 2004, according to eMarketer. Although about 95 percent of those ad revenues will go to the top 50 sites, you'll notice that 5 percent of $21 billion is still more than $1 billion. And no matter how new or small your site, you can get your share of this cash. Says Halprin, "Use your particular focus or the nature of your particular audience, and leverage that to create a deal that's not based on traffic."


Mark Henricks, author of Business Plans Made Easy (Entrepreneur Press) and Mastering Home Networking (Sybex Inc.), writes on business and technology issues.