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.
(Editor’s note: Visit Lightspeed’s blog for more of Jeremy’s posts)
