The subject of Cost Per Click advertising rates came up on the Journalism That Matters email list yesterday, and Tracy of West Seattle Blog raised an excellent point:

For local businesses advertising on ultralocal sites, display is the most successful model - raise awareness that the business exists - not clickthru. Can't speak to other types but we frequently explain this WRT our ads.

This completely matches with our own experience across our Neighborlogs network.

Too many people have focused on CPC because it's what worked for Google.  But Google got started doing contextual search advertising.  If someone does a search for hammers, it makes sense to show them an ad for hammers, and then charge the advertiser a transactional fee if the user clicks on a link where they might buy a hammer from some online ecommerce-enabled website.

But the hyper-local space is totally different:
1.  People don't typically go to hyperlocal news sites because they're in the market to buy something - it lacks that immediate transactional motivation
2.  Very few hyperlocal businesses will have anything other than a physical relationship with a customer.  Thus, sending a customer to their website doesn't usually result in a monetary transaction
3.  Most small neighborhood businesses have minimal websites (if any) that are unlikely to result in additional engagement with a potential customer if you send them there via an ad.

The main value of hyper-local advertising is to let neighbors know that a local business exists, or to remind them to come back to it again ("we haven't been to Coastal Kitchen in a while.  should go tonight").  This means that CPM or flat-rate ads make the most sense for both parties.

The one place where CPC ads might make sense in the hyperlocal world is in business directories. But you'd have to get a directory to a pretty significant scale before it would be make sense to complicate things with an additional charging mechanism to your existing list of ad positions.

Even though clickthrough is not a focus of our hyperlocal advertising, we do see reasonable clickthrough rates across our Neighborlogs network, averaging .6% over the last 30 days. Some individual advertisers have gotten that up to 12-15% by frequently updating their ad inventory to match special events in their business - our logo + text ad layouts make this much easier than it would usually be.  One example is a local movie theater that always promotes the exact movie they're showing at any given time, or a restaurant that has a daily food or drink offer.

This is also proven out with our own experience with Google AdSense, which we display in some situations to fill gaps in our own ad inventory.  Our eCPM on AdSense is $0.36 at a clickthrough rate of .06%.  By contrast, the eCPM on our Neighborlogs ad system is more than an order of magnitude higher at $4.91 for the month of February.  Also note that our internal ads were almost all self-serve, thus have a very low cost of sales.

So once you've settled on display ads as the best fit for this space, you're still left with the decision of CPM or flat rate ads.  We'll cover that in an upcoming blog post.