Two years ago I posted about the three ways to grow an online media business to $50 million in revenue. In this article I focused on RPM (Revenue per thousand pageviews, = CPM x sell through rate x # of ad units per page) and drew the distinction between three strategies, and the traffic needed for each strategy to get to scale:
1. Broad Reach, low RPM, traffic in the 10s of billions of pageviews/mth
2. Demographic Targeting, moderate RPM, traffic around 1 billion pageviews/mth
3. Endemic Targeting, high RPM, traffic in the 100s of millions of pageviews/mth
I think using CPM/RPM in this is a useful framework to think about strategy, but it isn’t necessarily the most useful way to think about how well an online media business is scaling. In practice, most online media companies do not sell out their inventory through direct sales. Because direct sales generates RPMs so much higher than remnant inventory running through ad networks, the amount of direct sales is key.
Direct sales shows real economies of scale. While it is harder and more expensive to sell, support and serve a $1M insertion order than a $10k insertion order, it doesn’t cost 100 times more. Unfortunately, many media startups find that their campaigns are primarily in the 10s of thousands. This creates inefficiency and makes it difficult to scale. It is hard to get to $50M in revenue $10k at a time.
Right now, the key measure that I use to judge how well an online media company is scaling is by looking at quarterly revenue by advertiser. The more advertisers are spending over $100K per quarter the better. I like to see 10 or more advertisers spending over six figures per quarter. This shows that the site has grown beyond “experimental buys” and has become a core part of the advertising mix for a core set of advertisers. These sites are over the hump on scalability of their business as it is much easier to get repeat business from clients who are committed to the site, and to use these reference accounts to drive further sales growth.
This post was originally published on Lightspeed Ventures Blog and is reposted here with permission. Lightspeed is a leading global venture capital firm with over $2 billion of committed capital under management. Our investment professionals and advisors are located in Silicon Valley, China, India and Israel.