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Forecasting ad sales for web startups April 3, 2008

Posted by jeremyliew in ad networks, advertising, business models, models, start-up, startup, startups.
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Andrew Chen has a good post on how to forecast advertising for web startups:

The right way to model out inventory is a number of equations – I’ll pretend that a site has two types of inventory, their “brand” stuff and their “direct response” (aka remnant) inventory:

Brand revenue = # campaigns sold * average campaign size * brand CPM
Direct response revenue = (total impressions – brand impressions) * remnant CPM
Total revenue = Brand + remnant revenue

In an actual forecast, you could get a ton more detail in the brand revenues side, since what you really care about is the # of ad sales people you have, how many campaigns they’re selling per quarter, the size, etc. Again, think of this as an enterprise sell, and treat it as such.

Essentially, he suggests that brand advertising is a function of the size and efficiency of your direct ad sales force (and is demand constrained) while remnant advertising can go to networks and is supply constrained.

As Ed Sim notes about a direct ad sales force:

… many entrepreneurs underestimate the direct capital and management costs necessary to build such a team. In many ways, building a direct ad sales team is similar to building an enterprise sales team. These thoughts may seem quite basic to you but here they are nevertheless. First, don’t ramp up your sales team too quickly until you have a product to sell. That means if you don’t have scale or enough eyeballs you are better off using Google Adsense. If you don’t heed this advice you may quickly burn yourself out of business. Secondly, I know that many startups may not know what kind of ad units to sell but be careful of not having a standard product list or rate sheet when you go out to the market.

This advice can be difficult to follow in a new market where there are no standard product lists, which is why new forms of advertising are hard.

Comments»

1. Ted Rheingold - April 4, 2008

Thanks for the link. Somehow I missed Andrew’s entry originally.

It provoked me to write a long comment there. To summarize, aside from over-staffing a sales team prematurely another big mistake I see publishers making is not doing any brand advertising sales early on. Brand is a trust/relationship business, you can’t simply say “okay, we’re ready for you to run big campaigns on our site,” no matter who you are or become.

2. Short Notes: Zapak, online ads, Twitterlocal « Blue Screen Of Duds - April 4, 2008

[...] Liew, meanwhile, posts a good short one on Andrew Chen’s take on forecasting sales for web start ups. Both are good [...]

3. Hiloa - April 17, 2008

Mobile advertising is a good gage to watch for farecasting ad sales. Right now there a lot of mobile social networks trying to prove their business model based on ad sales. Crush or flush has added a new revenue model for mobile social networks that looks very promising. See the article posted at http://www.hiloa.com.


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