information Part 2 - Understanding EPC

[Whizzbang]

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:

Read More >

 

[frank-germany]

wow that really sounds complex
so obviously I need an automated service that can
firstly understand and secondly compete in such a complex environent.. LOL

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…

Google couldn't care less about the advertisers convertion rate
I recommend you spend some money with adwords
I am positiv, after having spend 6 figures you will finally agree

proof 1:
there will always be a competitor
replacing the one that has not enough convertions to survive

proof 2:
they have not enough slots to fill with advertisers
thats why they auction them

 

[Whizzbang]

Hmmm.....you just keep doing what you are doing then. I think that's all I have to say on your comments.