This is the final video in the 10th Year of Blogging anniversary series and it covers the topic of Traffic Monetisation. In this video I give my thoughts on the domain monetisation industry, where it has come from and where it is going to in the future.

One thing is clear, if you are doing the same thing now as you always have done then you are leaving money on the table. This is a must watch video if you have experienced a decline in your traffic revenue over the last few years.

Traffic monetisation has become more of an algorithmic process rather than managing your domains via a spreadsheet. I hope you enjoy my thoughts on traffic monetisation and feel free to ask as many questions as you would like.

The formula outlined in the previous two articles on EPC looks a little scary but whether we like it or not it is THE formula upon which a huge amount of the domain investor community swings. Understanding how it can impact your business actually isn’t rocket science but requires a little intuition. Here is the EPC formula in its entirety.

The formula now incorporates the advertisement clicks and also the Monetisation company filter in the denominator. What it does clearly show is the closer you can get to an advertiser the higher the payouts.....no surprises there! The goal is to effectively eliminate many of the margins on the top line and potentially remove one of the multipliers in the denominator.

There are two problems with managing direct advertising relationships:

1.      There’s a large hidden downside cost associated with the relationship management.

2.      Most domain owners don’t have the scale to attract the interest of the serious advertisers.

The one great thing about domain parking is that it’s scalable without scaling the direct cost base associated with matching the advertisers. The question is whether there is enough free margin available to offset the costs.

The rise of zero-click solutions is an attempt at getting closer to the advertiser in a unique manner. For those of you that are unaware, zero-click is where domain traffic is routed directly through to an advertiser’s web page and does not require a click. Behind the scenes there is a real-time auction process to determine whether the zero-click advertiser will pay more than a parking solution for the traffic….if they do, then they get the traffic.

Many of the zero click companies have moved away from working directly with domain owners because the domain owners do not have enough traffic to warrant working with them. The cost of doing business is just too high…..therefore domain owners are faced with working with traffic aggregators.

What needs to be appreciated is that as soon as you add zero click to the mix then you are effectively introducing yet another EPC. Remember that EPC is a measurement across a period of time (typically 1 day) while zero-click is an offer at a point in time. In terms of the stock market, this is comparing an average price versus a spot price….the two don’t mix.

Let’s take a look at an example that will hopefully provide further insight into the challenges of zero-click. Remember the example of EPC we used in article two in this series? The EPC was made from six clicks each of $10, $10, $5, $5, $1 and $1. The final average EPC result for the day came to a value of $5.33. You don’t know the individual values that made up the $5.33 you ONLY know the $5.33.

Let’s imagine a zero-click solution offered $6 for the traffic? Since it’s more than $5.33 then it looks great! Wrong! Zero-click solutions are smart and only want the pristine traffic. They can often accept the traffic that you were previously getting paid $10 for and now pay you $6. Your average EPC for the day has now dropped to $4……which is lower than you received previously.

Correctly setting up a zero-click initially solution sounds trivial but it actually isn’t. There must be a dynamic swinging of the real-time auction process to ensure each piece of traffic receives its full value. This can get really complicated really quickly!

I hope this series of articles helps domain investors in their understanding of one of the very much taken for granted metrics that are bandied around. EPC isn’t as simple as can initially be thought about and yet coming to grips with its intricacies can pay significant dividends. If you have any questions then please don’t hesitate to leave a comment below.

This is the second article in the series that unpacks Earnings Per Click (EPC). Click here if you wish to reach Part 1. The previous article covered the basics in how EPC is calculated while this one goes in depth into what actually lays at the heart of EPC.

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So now we have an approximation for the EPC and the formula will look like.

EPC = (Total Revenue Over a Period of Time)  /  (No. Clicks x Parking Company Filter)

This is great but we have forgotten the other side of the whole equation. An Earnings Per Click for the domain owner is a Cost Per Click (CPC) for the advertiser. How much they will pay for each click will be dependent upon their business models and ultimately conversion rates.

If I’m an advertiser and I need 10 clicks at $1 each to make a sale and I make $20 for every sale, then I’m happily making money. But if the online auction for the traffic increases to $2 per click then my advertising is costing $20 and I’m making $0.

In a perfect world where everyone has the identical conversion rate, the advertiser with the lowest cost base will ultimately be able to outbid their competitors. It just so happens that we don’t live in a perfect world and many advertisers have widely varying margins that they can expend upon buying traffic.

Assuming economically rational advertisers (they aren’t always) we can then simplify what an advertiser is willing to pay for a click down to the following equation:

p=  A_m  S  C

Where:

p= maximum price per click

A_m = Advertiser gross margin on the goods/service being sold

S = total value of the sale

C = Conversion rate (0 to 100%)

What this formula suggests is that in market verticals with large margins the EPC should trend higher. We see this as domain investors know the “Sale Value” of a mortgage lead is much higher than a computer games lead, so the EPC for mortgage traffic is much more valuable. Remember we are talking about EPC rates and not revenue at this stage…..revenue will also depend upon the click through rate.

By adding the conversion rate into the equation, we can clearly see why Google wants conversions to be as high as possible. The higher the conversion rate, the higher an advertiser can bid for traffic. I read in a forum recently that Google doesn’t care about the conversion rate…..this formula debunks that theory and provides an economic rational why Google wants higher conversions.

Ideally for a domain investor we want high traffic domains in market verticals that have big margins and large sale prices. Sadly, these are few and far between…

So we now know what an advertiser is willing to pay for a click but what’s our percentage? If we were to simplify the whole advertising auction system, then the formula for revenue now looks like the scary one below.

Where:

p= Price advertisers pay per click
f(p)= p x Advertising clicks
G= Google margin
Mg = Additional Google tier margin
T = Tag smart pricing
M= Monetisation company margin

What does this complicated equation actually mean? Once you get past the sigma notation (ie. Sum) you have a function which is essentially what an advertiser pays for a click multiplied by the number of clicks.

The (1 – G) is the Google margin and the “T” is some “smart pricing” factor that is applied to the tag that your particular account at a parking provider happens to be on. The (1 + Mg) is the increase in margin due to the Google tiers that a particular parking company may be on….this typically has a very small impact on the results. The (1 – M) is the margin taken by the parking provider. This will then become the numerator for the EPC equation.

The sigma or sum just means sum all of the revenue earned for all of the values of "p" for the function f(p). In other words, just add up all of the revenue. So let's move on.....

The denominator (ie. Number of clicks) is different to the advertising clicks. This is where it can get a little tricky. An advertiser may still pay for a click but it is still not registered as a click in a parking company interface due to their filters. By rights, the revenue should still flow through (fingers crossed) but the clicks may not.

The question domain investors should ask is what can they influence in the equation? Assuming Google has the targeting right (they don’t always) then there isn’t that much at a single parking provider. If you’re big enough you can squeeze parking company margins but other than that an individual domain owner typically neither has the scale nor the technology to take advantage of other optimisation solutions. Don’t worry…..there is light at the end of the tunnel.

A few things should be said…..given the volatility of the domain parking market the parking companies do not have any spare margin to hand around to domain owners. In other words, there isn’t some secret slush fund that any of them have. If this were the case, then it would come out and as soon as they paid out with the slush fund it would be soaked up as domain owners migrate their traffic across to them. It’s the market at work….

On a personal note, as one of the founders of ParkLogic I've found that getting underneath the mathematics really provides dividends for clients. Understanding the maths and coming to grips with the fact that its constantly changing ís one of the reasons why large domain investors utilise our service.

In the next article I will go through the opportunities and pitfalls that understanding EPC presents for domain investors.

One of the most misunderstood metrics that is bandied around by domain owners is the term Earnings Per Click (EPC). Everyone assumes they understand what it is but very few people have come to grips with how it’s calculated. In this short series of articles, I will pull apart EPC and show how it’s calculated so you can be in the know.

I was inspired to dive into this topic largely because I read a thread on a forum recently and it was clear that there were a lot of misconceptions about EPC that needed to be cleaned up.

I need to apologise for some of the maths in this series. The domain monetisation industry lives and dies by numbers and there's just no getting away from them. I should also say that domain parking is very much alive and well. The main reason for this is advertisers want our extremely valuable traffic.

So let's get too it! We need to define Earnings Per Click in terms of a mathematical formula….it’s initially not that complicated so don’t panic.

EPC = Revenue  /  No. of Clicks

This seems pretty obvious but we need to dig a little further into the definitions of both Revenue and Clicks.

When you look at your stats for a domain at a parking company you are seeing the AVERAGE revenue the domain makes across a period of time. The shortest period of time that can be viewed is one day but it’s still an average.

I’ve seen domainers complain continuously about the fact they seem to earn a large amount on one day and a small amount the next for a particular domain. There is a second factor that comes to play in this averaging process.

A typically parked page has up to ten advertisements being displayed and generally speaking the advertiser at the top paid more for their position than the advertiser at the bottom. For some market verticals the discrepancy can be really large with the top advertiser paying a large amount per click and the bottom advertiser paying pennies.

Everyone seems to assume the demand curve for a keyword is completely horizontal and yet this couldn’t be further from the truth. In some cases, there is a sharp drop off in the price willing to be paid by the advertisers for the domain traffic. An example price/demand curve could look like the one below.

The sharp drop off means the EPC paid would fluctuate greatly depending upon where a user clicked on the page. Typically speaking the higher EPC advertisements are placed at the top of the page and the lower paid advertisements further down the page…..but with Google’s move to psychographic targeting of users this isn’t always the case (and this complicates things immeasurably).

There is a different shaped curve for every market vertical and sub-vertical for that matter. This will greatly influence the dynamic nature of the EPC rates.

In the example above, a low traffic domain means fewer clicks on the page and the averaging would not be felt as much. This would create the wild fluctuations in the EPC rate that many domain investors currently experience.

For example, let’s imagine there was a single click on the page that paid out $10, this would mean the EPC was $10. Compare this to six clicks that paid $10, $10, $5, $5, $1 and $1 that would then have an average EPC of $5.33. In the first example if there was a click of $0.10 of then there is a large decline in the EPC but if there was a single click of $0.10 in the second example the EPC moves down only a little to $4.59. It’s a simplistic example but it shows averages at work.

One of the many challenges that all parking companies must deal with is bot clicks or even worse, fraudulent clicks. These clicks should be stripped out otherwise advertisers would be paying for clicks that have no opportunity to generate revenue.

Because all parking providers apply different filters to their click traffic the “No. of Clicks” or denominator can vary greatly from one provider to another. This also means you can’t compare one provider’s EPC versus another provider.

So now we have an approximation for the EPC and the formula will look like.

EPC = (Total Revenue Over a Period of Time)  /  (No. Clicks x Parking Company Filter)

In the next article in this series I'm going to really dive into the mathematics that make up the EPC and prove why conversion is so important for all domain owners.

Many people talk about having quality domain traffic but what does “quality” actually mean? In this article, I’m going to attempt to unpack "quality” and from who's perspective.

Domain owners often confuse quality as being a measurement of the level of real human versus bot traffic. On the other hand, advertisers define quality as traffic that converts for them. Who is right and are these sensible definitions for quality?

Recognised versus unrecognised traffic is the ratio of the views over the URLs for a domain name. Remember views are what the parking companies report while URLs are the unfiltered raw traffic for a domain. This is also the measurement of how much traffic is effectively dropped by a parking company as they deem it either a bot or unacceptable for one or another reason. The assumption is the greater the ratio of views to URLs the better the traffic quality.

Let’s imagine I have a views to URLs ratio of one (ie. A perfect score). There are a number of other filters the traffic flows through before an advertiser deems a traffic source as containing high quality. Let’s break these steps down.

A user clicks on an advertising link.

A domain with a high Click Through Rate (CTR) suggests there is an appropriate match between the traffic (ie. Users) and what is being displayed. The user is enticed to click on an advertisement to find out more information.

If the user was interested in games and the page had mortgage advertisements, then there is a mismatch and the CTR would reflect a lower number.

This sounds pretty obvious until we consider that a couple of years ago Google changed their advertising from being context sensitive to psychographically targeting the end user. In other words, previously if a user went to beds.com they would see bed related advertisements. This has now changed so that if I go to beds.com, it may also display hotels for Bali because Google knows I’ve been searching for a good vacation spot.

This also means we can't judge the content of a parked page simply by going to it ourselves....which is a little disappointing because it was so easy in the past to match the traffic to the advertisers.

Advertiser’s Website Convinces User to Begin Buying Process

After clicking on the advertisement, the user is faced with the sales pitch to entice them to buy the product. This is completely out of the hands of the domain owner that sent the traffic but is an important part of the overall quality process from the perspective of the advertiser. The goal is to have the user begin the purchasing process by adding the item to their shopping cart.

User Pays for the Shopping Cart

The advertiser only earns money when the user puts their hand in their pocket and actually pays for the shopping cart. Without this singular event no advertiser would ever buy any advertising. This is one of the reasons why advertisers regard converting traffic as quality traffic.

If we were to take these steps and create a mathematical formula, then it would look something like this:

URLs X Parking Filter = Views

Views x CTR X Click on Specific advertisement = Traffic to advertiser website

Traffic to advertiser X % Who Complete Purchase action = Shopping cart filled

Shopping cart filled X % of people that pay = sale

This means that a sale is a fraction of the total URLs that first went to a domain name. An advertiser is often blissfully unaware of many of the intermediate steps and focuses their attention on their total sales divided by how much they paid in advertising. This provides them the gross return on their investment. This is a simplistic view but it will do for illustrative purposes.

The problem with this whole process is quality is being defined in terms of sales. What happens if the advertisers pitch attracts the wrong type of potential buyer? What if the sales pitch on the advertiser’s website is really poor? What if the advertiser’s website just looks horrible and has a clunky shopping cart system?

There are so many factors that go into the sales event that are out of the control of the domain owner so why should the domain owner suffer? Ultimately it’s because the advertiser is the one that pays the cash.

So what can a domain owner influence? The only thing they can do is potentially increase the CTR by better matching the contents of a page to the advertiser…..but as we discussed earlier this has largely (not completely) been circumvented by Google’s psychographic targeting systems.

What some domain owners have done in the past is pick up their traffic and move it one hundred percent to a direct advertiser that will hopefully value it. For example, this means taking your travel traffic and pointing it at a travel website.

This all makes some sense until you look at things from the advertisers point of view. Previously, the parked page and clicking process effectively acted as a filter for those people who were interested in the products/services being advertised. Why would you click on an advertisement unless you at least mildly interested? By pointing all the domain traffic this filter is no longer in place.

If the advertiser was paying Google $2 per lead previously then they will be forced to place a discount on this to accommodate the disinterested traffic. This is very likely to trend to the CTR for the domain. Which is another way of saying, “I don’t want to pay for the people that didn’t want to click in the first place.”

If the CTR was originally 20% then the advertiser will pay 20% x $2 = $0.40.  This may be greater than what Google less the parking company commission was paying the domain owner for the traffic. So it may still be worthwhile for the domain owner.

Advertisers may pay more than this figure because they are after volume. Essentially it’s paying a premium to the domain owner because the domain owner can provide a large amount of business. This is a potentially a great result for both parties.

The problem most domain owners have is they don’t control enough traffic in any single market vertical to make it worthwhile to establish these secondary relationships. The advantage with working with a traffic aggregator is they can pool the total traffic from multiple domain owners and send it to individual advertisers. It’s the economies of scale at work.

This all brings us back to the definition of quality. It’s clear there are different definitions depending upon whether you are a domainer or an advertiser. Ultimately for true direct navigation there is no such thing as quality but only results.

The single biggest challenge that domain owners experience is we have very little insight into what domain traffic converts and what doesn’t. If this was provided in our daily statistics, then we could truly value our traffic from an advertiser’s perspective. Maybe we'll get this one day but I wouldn't hold my breath!