You want to run a banner advertising campaign for your business on the home page

Question

You want to run a banner advertising campaign for your business on the home page of the Website Yourportal.com. Yourportal.com has given you two payment alternatives to choose from: 1) A CPM of $50, or 2) A PPC system where you choose to bid how much you want to pay per click. You find out that Yourportal.com's home page attracts 1, 200,000 impressions (i.e., visits) per month, and your banner ad would get a click-ratio of 4%. How much would you bid for payment on a PPC basis, if your total monthly advertising bill is to be the same as what you would pay on a CPM basis, given the above information?

Explanation / Answer

4% of 1200000 = 48000.

So, expected number of clicksper month = 48000

If bid is p cents per click.

Then, the expected monthly advertising bill = $480p.

To fulfill the given condition, 480p must be equal to 50, since payment under CPM is $50.

Solving, 480p = 50, p = 40/480 = $0.0417 = 4.17 ~ 4 cents ANSWER

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