Pay-per-lead makes inroads as online ad pricing method

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Forget the long-running debate over click-through vs. cost-per-thousand pricing models. Advertisers are coming up with more specialized and creative ways to pay for advertising on the Internet.

The latest to surface is a cost-per-lead model. Last week, insurance provider Garden State Life announced deals with several sites to pay $10 per lead generated. More specialized than simple click-through, cost-per-lead advertisers pay a site every time a valid user fills out and submits a request for information, usually done on a microsite within the page.

Garden State Life banners are running on Insurance News Network and GolfWeb, and will be followed by a test run on DoubleClick Direct. The company also did testing with several other sites, including the Christian Community Network and investor site Wall Street City, where the banners didn't work as well, according to Garden State's interactive agency the Synapse Group.

"It has been a bit painful. Some sites didn't produce income like we thought they would," said Wanita Burnett, online marketing consultant for Synapse.

FINANCIAL SITES WANT THEIR CPM

Several leading financial sites, which would seem to be a natural fit for a cost-per-lead model for sales-oriented advertisers, said they have received some requests for the pricing method but are sticking with the CPM model.

"We certainly get asked if we would consider that," said Randy Kilgore, advertising director with the Wall Street Journal Interactive Edition, "But we're not considering adopting any per-click models. It wouldn't be fair to all the rest of our advertisers."

Chris Lambiase, VP-publisher of SmartMoney, and publisher of SmartMoney Interactive, agreed.

"We need parity. I can't afford to have advertisers on the site operating on different models. . . . If you're publishing a magazine, you wouldn't take cost-per-lead advertising," he said. "If the Web is to develop into a legitimate advertising medium, I think it should maintain a more reasonable pricing model."

Ms. Burnett said Garden State would have considered a low CPM model incorporating cost per lead, such as charging $5 per thousand impressions, plus $10 per lead. However, the insurance company managed to get the quality sites it was looking for without a CPM component, she said.

Also, as sellers point out, most sites have unused inventory with which to test cost per lead, as well as other action-based models such as cost-per-transaction.

"Garden State wouldn't be as successful with CPM because they have little brand awareness, and term life insurance is a low involvement product," Ms. Burnett said. "If a company is built on leads and capturing customers, you have to be more aggressive than a company more involved with maintaining a brand."

BENEFITS AND DRAWBACKS

Peter Krasilovsky, analyst with consultancy Arlen Communications, said there are benefits and drawbacks to cost per lead.

"It commits you to having a vested interest in your client and kind of precludes you from dealing with advertisers you don't agree with," he said. "But it also allows companies that are less committed to the Web to get up there and see if it will work for them."

Copyright March 1998, Crain Communications Inc.

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