I have spoken to quite a number of startups that are looking to monetize their model via advertising. I ran a number of back of the envelope type calculations and came up with a comparison between advertising and fee based services.
For example, lets plan on generating revenue of $25,000 per month. (all numbers are per month)
Advertising:
Revenue: $25,000 / mo.
$ CPM: $0.20
Page Views: 125,000,000 / mo.
Pages / User: 50 / mo.
Users: 2,500,000 / mo.
Fee Based Model:
Revenue: $25,000
$ / Order: $10
Orders: 2,500 / mo.
o/c: 0.50%
Users: 500,000 / mo.
While these numbers are crude they do illustrate the point well. Even with a low conversion rate, a fee based model required 1/5th of the users that an advertising model will. I would agree that an advertising model can scale more quickly than a fee based model, but that requires that the service be one of the first to market, have an innovative approach that undermines the existing players and is large enough, yet targeted enough to demand higher CPMs. If those things are not in place, then I would seriously consider looking at your model.
About nathan kaiser
Hmm. Isn’t a $0.20 CPM an unreasonably low assumption?