Today I want to touch on the costs of getting traffic to your site. Your earnings with Contextual Advertising will only grow when you have visitors who are interested in your ads and click on them. But you gotta have visitors.

Here's the formula:

Earnings = page impressions * ads per page * click thru rate * average price per click

Let's assume page impression is a constant p.

Then earnings = p * CTR * CPC.

So calculating how much your traffic is costing you is vital, because it draws from your bottom line.

There are MANY ways to drive traffic to your site; the main two, search engine optimization and advertising. Advertising takes on many forms: text ads, banner ads, newspaper ads, links, word of mouth, etc.

The most important part to remember is that there is no free lunch. In other words, every form of advertisement costs something. Effort was expended to get you the results. The key is that you need to quantify the effort. You'll hear me use that a lot - quantify it. Only when you can measure it is it possible to track.

And remember to count your time and effort. Here's my rule of thumb: count $10 for every hour of personal labor you put into traffic. This includes chatting with someone to spread the word about your site, work on SEO items, keyword optimization, literally anything that takes your time - you must quantify it.

Say you are out and talk with someone for ten minutes about your new site; that's $2.00 of your time.

Okay, Dave - that's getting picky.

Using AdWords or Yahoo! Search Marketing to drive traffic is a little easier to quantify. You can easily see how much of your budget was spent. But even here, I count my time spent creating ads, working on keywords, tweaking and refining.

So here's your homework:

Grab a sheet of paper and write down your campaign name. Below that, list the ways you are currently using to drive traffic to the site. Then, count your time spent to accomplish the work. Make this a figure you are comfortable with.

Here's an example.

Campaign: Shelled Brazil Nuts - - - - - - - - - - - - - - - - - - - -
Traffic: SEO work - $5.00 (30 mins/day @ $10/hr)
AdWords account - $7.00/day
Links - $1.00/day ($30/month)
Total: $13.00/day

So, great! We have a liability of $13.00 a day. Why do we need to know this number?

This number is key, because this is the number we must beat in order to see a profit. Anything over $13.00 is good. Anything less is not good. But there's more. Don't forget your other costs - hosting (unless you use a free blog account), bandwidth, and design of your site.

See how important it is to keep track of what our traffic costs are? It's vital, if you want to get profitable.

Next, I answer the question of how important it is to choose the right contextual ad company.

Until then, as Mom always said, "do your homework!"