CTR (Click Through Rate) – Explanation, Results and Tips

A very important metric for banner advertiesment is the CTR (click through rate). It is simply the number of clicks the ad generated divided by the number of total impressions. You can also think of it as the product of the probability of a user noticing the ad and the probability of the user being interested in the ad.

CTR = clicks / impressions = p(notice) · p(interested)

The current average CTR is around 0.09 % or 9 clicks per 10,000 impressions and has been declining for the past several years. What are the reasons for this? For one, the common banner locations are familiar to web users and are thus easy to ignore. There’s also the increased popularity of ad-blocking software.

The attitude of internet users is generally negative towards banner ads. This is caused by advertisers using more and more intrusive formats. These include annoying pop-ups and their even more irritating sisters, the floating ads. Adopting them is not favorable for advertisers. They harm a brand and produce very low CTRs. So hopefully, we will see an end to such nonsense soon.

As for animated ads, their success depends on the type of website and target group. For high-involvement websites that users visit to find specific information (news, weather, education), animated banners perform worse than static banners. In case of low-involvement websites that are put in place for random surfing (entertainment, lists, mini games) the situation is reversed. The target group also plays an important role. For B2C (business-to-consumer) ads animation generally works well, while for B2B (business-to-business) animation was shown to lower the CTR.

The language used in ads has also been extensively studied. One interesting result is that often it is preferable to use English language even if the ad is displayed in a country in which English is not the first language. A more obvious result is that catchy words and calls to action (“read more”) increase the CTR.

As for the banner size, there is inconclusive data. Some analysis report that the CTR grows with banner size, while others conclude that banner sizes around 250×250 or 300×250 generate the highest CTRs. There is a clearer picture regarding shape: in terms of CTR, square shapes work better than thin rectangles having the same size. No significant difference was found between vertical and horizontal rectangles.

Here’s another hint: my own theoretical calculations show that higher CTRs can be achieved by advertising on pages that have a low visitor loyalty. The explanation for this counter-intuitive outcome as well as a more sophisticated formula for the CTR can be found here. It is, in a nutshell, a result of the multiplication rule of statistics. The calculation also shows that on sites with a low visitor loyalty the CTR will stay constant, while on websites with a high visitor loyalty it will decrease over time.

Sources and further reading:

• Study on banner advertisement type and shape effect on click-through-rate and conversion

Click to access 131481.pdf

• The impact of banner ad styles on interaction and click-through-rates

Click to access S2008_989.pdf

• Impact of animation and language on banner click-through-rates

http://www.academia.edu/1608289/Impact_of_Animation_and_Language_on_Banner_Click-Through_Rates

Mathematics of Banner Ads: Visitor Loyalty and CTR

First of all: why should a website’s visitor loyalty have any effect at all on the CTR we can expect to achieve with a banner ad? What does the one have to do with the other? To understand the connection, let’s take a look at an overly simplistic example. Suppose we place a banner ad on a website and get in total 3 impressions (granted, not a realistic number, but I’m only trying to make a point here). From previous campaigns we know that a visitor clicks on our ad with a probability of 0.1 = 10 % (which is also quite unrealistic).

The expected number of clicks from these 3 impressions is …

… 0.1 + 0.1 + 0.1 = 0.3 when all impressions come from different visitors.

… 1 – 0.9^3 = 0.27 when all impressions come from only one visitor.

(the symbol ^ stands for “to the power of”)

This demonstrates that we can expect more clicks if the website’s visitor loyalty is low, which might seem counter-intuitive at first. But the great thing about mathematics is that it cuts through bullshit better than the sharpest knife ever could. Math doesn’t lie. Let’s develop a model to show that a higher vistor loyalty translates into a lower CTR.

Suppose we got a number of I impressions on the banner ad in total. We’ll denote the percentage of visitors that contributed …

… only one impression by f(1)
… two impressions by f(2)
… three impressions by f(3)

And so on. Note that this distribution f(n) must satisfy the condition ∑[n] n·f(n) = I for it all to check out. The symbol ∑[n] stands for the sum over all n.

We’ll assume that the probability of a visitor clicking on the ad is q. The probability that this visitor clicks on the ad at least once during n visits is just: p(n) = 1 – (1 – q)^n (to understand why you have the know about the multiplication rule of statistics – if you’re not familiar with it, my ebook “Statistical Snacks” is a good place to start).

Let’s count the expected number of clicks for the I impressions. Visitors …

… contributing only one impression give rise to c(1) = p(1) + p(1) + … [f(1)·I addends in total] = p(1)·f(1)·I clicks

… contributing two impressions give rise to c(2) = p(2) + p(2) + … [f(2)·I/2 addends in total] = p(2)·f(2)·I/2 clicks

… contributing three impressions give rise to c(3) = p(3) + p(3) + … [f(3)·I/3 addends in total] = p(3)·f(3)·I/3 clicks

And so on. So the total number of clicks we can expect is: c = ∑[n] p(n)·f(n)/n·I. Since the CTR is just clicks divided by impressions, we finally get this beautiful formula:

CTR = ∑[n] p(n)·f(n)/n

The expression p(n)/n decreases as n increases. So a higher visitor loyalty (which mathematically means that f(n) has a relatively high value for n greater than one) translates into a lower CTR. One final conclusion: the formula can also tell us a bit about how the CTR develops during a campaign. If a website has no loyal visitors, the CTR will remain at a constant level, while for websites with a lot of loyal visitors, the CTR will decrease over time.

Self-Publishing – A Rat Race

The trouble with the rat race is that even if you win, you’re still a rat. (Lily Tomlin)

Self-publishing seems like a cozy thing to do. You are free to choose any topic, free to write any way you like, free to set your own schedule … in short: a fantastic opportunity to express oneself and to share your ideas with the world. But as with anything on God’s green Earth, you gotta read the small print. There’s a good chance that self-publishing sucks you into a rat race filled with uncertainty, stress, anger and sleepless nights.

You chase the Amazon ranks like an addict chasing the drug that will bring his doom. You rush to finish the next book before the previous one drops out of Amazon’s “new releases” list. You are downright angry at an invisible algorithm that doesn’t make your book appear in the “also bought” list. You spend hours and hours of searching new ways to be seen and spend hours and hours frustrated when you can’t achieve the visibility you desire. You are happy about the sudden rise in sales and wonder obsessively about the following drop. You feel fantastic about the praise and are devasted for days about a bad review. If you get sucked in, there’s little left of the original idea: express oneself and share the ideas.

Any book takes a lot of work. The actual writing and researching, the creative process, is only a part of it. Thorough editing takes patience and time. You have to proof-read your book until you can’t stand the sight of it. This is the only way of making it error-free if you don’t intent to hire an editor. You have to format the whole thing for Kindle properly, including making it pass the EPUB validation (which will most likely cause you to scream at your innocent computer screen on more than one occasion), make the right book cover and write a catchy blurb. Then comes the worst part: marketing. Like a desperate and lonely vacuum cleaner salesman you go from virtual door to virtual door, begging for attention and feeling dirty all along. All for this little gain in visibility and rank, the self-published author’s cocaine. Then come the rollercoaster sales and reviews. If you kept your cool up to now, this will get to you. It’s amazing how much a negative review can hurt. But it’s just part of the job.

The rat race is on and you are rat #2,534,287 trying to find your edge. Remember the original idea? The expressing and sharing thing? Rat #2,534,287 doesn’t, all it wants to do is chase ranks.

I’m not making a case against self-publishing. I’m making a case for remembering why you do it or want to do it. The original idea that made writing your first book a joy. The first book! Just pure creative process. No thought wasted on ranks, promos, new releases, also boughts, pricing, … That’s how it should be. And that’s why I’m taking a break from publishing, to get back to this state of mind. I want to be me, not rat #2,534,287.

Distribution of E-Book Sales on Amazon

For e-books on Amazon the relationship between the daily sales rate s and the rank r is approximately given by:

s = 100,000 / r

Such an inverse proportional relationship between a ranked quantity and the rank is called a Zipf distribution. So a book on rank r = 10,000 can be expected to sell s = 100,000 / 10,000 = 10 copies per day. As of November 2013, there are about 2.4 million e-books available on Amazon’s US store (talk about a tough competition). In this post we’ll answer two questions. The first one is: how many e-books are sold on Amazon each day? To answer that, we need to add the daily sales rate from r = 1 to r = 2,400,000.

s = 100,000 · ( 1/1 + 1/2 + … + 1/2,400,000 )

We can evaluate that using the approximation formula for harmonic sums:

1/1 + 1/2 + 1/3 + … + 1/r ≈ ln(r) + 0.58

Thus we get:

s ≈ 100,000 · ( ln(2,400,000) + 0.58 ) ≈ 1.5 million

That’s a lot of e-books! And a lot of saved trees for that matter. The second question: What percentage of the e-book sales come from the top 100 books? Have a guess before reading on. Let’s calculate the total daily sales for the top 100 e-books:

s ≈ 100,000 · ( ln(100) + 0.58 ) ≈ 0.5 million

So the top 100 e-books already make up one-third of all sales while the other 2,399,900 e-books have to share the remaining two-thirds. The cake is very unevenly distributed.

This was a slightly altered excerpt from More Great Formulas Explained, available on Amazon for Kindle. For more posts on the ebook market go to my E-Book Market and Sales Analysis Pool.

Five Biggest Mistakes In E-Book Publishing

Are you thinking about publishing an e-book? If yes, then know that you are entering a highly competetive market. Publishing a book has never been easier and accordingly, many new authors have joined in. To have a chance at being read, you need to make sure to avoid common mistakes.

1. Lack of Writing Experience

Almost everybody can read and write, it’s a skill we learn from an early age on. But writing is not the same as writing well. It takes a lot of practice to write articles or books that make a good read. So before you start that novel, grow a blog and gain experience. This provides a chance to see what works and what doesn’t. And the improvement will become noticeable after just a few weeks and months. As a plus, the blog you grew can serve as a marketing platform once your e-book is finished. In such a competitive market, this can be a big advantage.

2. Writing for Quick Cash

Writing for quick and easy cash is a really bad idea. This might have worked for a short while when the e-books were new and fresh, but this time is long gone. Just browse any indie author forum for proof. The market is saturated. If your first e-book brings in 30 $ a month or so, you can call yourself lucky. If it’s more, even better, but don’t expect it. Writing and selling e-book is not a get-rich-quick scheme. It’s tough work with a very low ROI. If you do it for the money, you’re in for a disappointment. Do it out of passion.

3. Lack of Editing

If you spend three weeks writing a book, expect to spend another three weeks on fine-tuning and proof-reading. To find the mistakes in the text, you have to go over it again and again until you can’t stand your book anymore. You’ll be amazed that seemingly obvious mistakes (the same words twice, for for example) can be overlooked several times. And no spell checker will find that. Tedious editing is just part of writing and if you try to skip that, you will end up with many deserved one-star reviews.

4. No or Ineffective Marketing

With 2.5 million e-books on Amazon, many of high quality, getting noticed is tough. Without any marketing, your sales will most likely just disappear in an exponential fashion over time. The common marketing means for indie authors are: growing a blog, establishing a facebook fan page, joining facebook groups and interacting, becoming active on twitter, joining goodreads and doing giveaways, free promos via KDP Select, banner and other paid ads (notably on BookBub – as expensive as it is effective), and and and … So you’re far from done with just writing, editing and publishing. You should set aside half an hour a day or so for marketing. And always make sure to market to the right people.

5. Stopping After The First Book

Publishing the first e-book can be a quite sobering experience. You just slaved for weeks or even months over your book and your stats hardly move. Was it all worth it? If you did it out of passion, then yes, certainly. But of course you want to be read and so you feel the frustration coming in. The worst thing you could do is to stop there. Usually sales will pick up after the third or fourth book. So keep publishing and results will come in.

How E-Book Sales Vary at the End / Beginning of a Month

After getting satisfying data and results on ebook sales over the course of a week, I was also interested in finding out what impact the end or beginning of a month has on sales. For that I looked up the sales of 20 ebooks, all taken from the current top 100 Kindle ebooks list, for November and beginning of December on novelrank. Here’s how they performed at the end of November:

• Strong Increase: 0%
• Slight Increase: 0 %
• Unchanged: 20%
• Slight Decrease: 35 %
• Strong Decrease: 45 %

80 % showed either a slight or strong decrease, none showed any increase. So there’s a very pronounced downwards trend in ebook sales at the end of the month. It usually begins around the 20th. Onto the performance at the beginning of December:

• Strong Increase: 50%
• Slight Increase: 35 %
• Unchanged: 10%
• Slight Decrease: 5 %
• Strong Decrease: 0 %

Here 85 % showed either a slight or strong increase, while only 5 % showed any decrease. This of course doesn’t leave much room for interpretation, there’s a clear upwards trend at the beginning of the month. It usually lasts only a few days (shorter than the decline period) and after that the elevated level is more or less maintained.

Mathematical Model For (E-) Book Sales

It seems to be a no-brainer that with more books on the market, an author will see higher revenues. I wanted to know more about how the sales rate varies with the number of books. So I did what I always do when faced with an economic problem: construct a mathematical model. Even though it took me several tries to find the right approach, I’m fairly confident that the following model is able to explain why revenues grow overproportionally with the number of books an author has published. I also stumbled across a way to correct the marketing R/C for number of books.

The basic quantities used are:

• n = number of books
• i = impressions per day
• q = conversion probability (which is the probability that an impression results in a sale)
• s = sales per buyer
• r = daily sales rate

Obviously the basic relationship is:

r = i(n) * q(n) * s(n)

with the brackets indicating a dependence of the quantities on the number of books.

1) Let’s start with s(n) = sales per buyer. Suppose there’s a probability p that a buyer, who has purchased an author’s book, will go on to buy yet another book of said author. To visualize this, think of the books as some kind of mirrors: each ray (sale) will either go through the book (no further sales from this buyer) or be reflected on another book of the author. In the latter case, the process repeats. Using this “reflective model”, the number of sales per buyer is:

s(n) = 1 + p + p² + … + pⁿ = (1 – pⁿ) / (1 – p)

For example, if the probability of a reader buying another book from the same author is p = 15 % = 0.15 and the author has n = 3 books available, we get:

s(3) = (1 – 0.15³) / (1 – 0.15) = 1.17 sales per buyer

So the number of sales per buyer increases with the number of books. However, it quickly reaches a limiting value. Letting n go to infinity results in:

s(∞) = 1 / (1 – p)

Hence, this effect is a source for overproportional growth only for the first few books. After that it turns into a constant factor.

2) Let’s turn to q(n) = conversion probability. Why should there be a dependence on number of books at all for this quantity? Studies show that the probability of making a sale grows with the choice offered. That’s why ridiculously large malls work. When an author offers a large number of books, he is able to provide list impression (featuring all his / her books) additionally to the common single impressions (featuring only one book). With more choice, the conversion probability on list impressions will be higher than that on single impressions.

• q_s = single impression conversion probability
• p_s = percentage of impressions that are single impressions
• q_l = list impression conversion probability
• p_l = percentage of impressions that are list impressions

with p_s + p_l = 1. The overall conversion probability will be:

q(n) = q_s(n) * p_s(n) + q_l(n)* p_l(n)

With q_l(n) and p_l(n) obviously growing with the number of books and p_s(n) decreasing accordingly, we get an increase in the overall conversion probability.

3) Finally let’s look at i(n) = impressions per day. Denoting with i₁, i₂, … the number of daily impressions by book number 1, book number 2, … , the average number of impressions per day and book are:

i_b = 1/n * ∑[k] i_k

with ∑[k] meaning the sum over all k. The overall impressions per day are:

i(n) = i_b(n) * n

Assuming all books generate the same number of daily impressions, this is a linear growth. However, there might be an overproportional factor at work here. As an author keeps publishing, his experience in writing, editing and marketing will grow. Especially for initially inexperienced authors the quality of the books and the marketing approach will improve with each book. Translated in numbers, this means that later books will generate more impressions per day:

i_k+1 > i_k

which leads to an overproportional (instead of just linear) growth in overall impressions per day with the number of books. Note that more experience should also translate into a higher single impression conversion probability:

q_s(n+1) > q_s(n)

4) As a final treat, let’s look at how these effects impact the marketing R/C. The marketing R/C is the ratio of revenues that result from an ad divided by the costs of the ad:

R/C = Revenues / Costs

For an ad to be of worth to an author, this value should be greater than 1. Assume an ad generates the number of i_ad single impressions in total. For one book we get the revenues:

R = i_ad * q_s(1)

If more than one book is available, this number changes to:

R = i_ad * q_s(n) * (1 – pⁿ) / (1 – p)

So if the R/C in the case of one book is (R/C)₁, the corrected R/C for a larger number of books is:

R/C = (R/C)₁ * q_s(n) / q_s(1) * (1 – pⁿ) / (1 – p)

In short: ads, that aren’t profitable, can become profitable as the author offers more books.

For more mathematical modeling check out: Mathematics of Blog Traffic: Model and Tips for High Traffic.

The Ebook Market in Numbers

Over the years the ebook market has grown from a relatively obscure niche to a thrilling billion-dollar mass market. The total ebook revenues went from 64 million $ in 2008 to about 3 billion $ in 2012. That’s a increase by a factor of close to 50 in just a few years.

The number of units sold also increased by the same factor (from 10 million units in 2008 to 457 million in 2012).

(Source)

However, many experts believe that the ebook market has reached a plateau and the numbers for the first half of 2013 seem to confirm that.

From the revenues and units sold we can also extract the development of the average price for sold ebooks. It strongly increased from 6.4 $ in 2008 to about 8 $ in 2009. After that, it quickly went back down to 7 $ in 2010 and 6.7 $ in 2012. So ebooks have gotten cheaper in the last few years, but are still more expensive than in 2008.

As of 2012, ebooks make up 20 % of the general book market.

21 % of American adults have read an ebook / magazine / newspaper on an e-reader in 2012. This is up from 17 % in the previous year.

A survey, again from 2012, shows that most e-book consumers prefer Amazon’s Kindle Fire (17 %, up from no use) , followed by Apple’s iPad (10 %, same as previous year) and Barnes & Noble’s Nook (7 %, up from 2 %).

Amazon Plans to Use Drones to Deliver Packages

Usually I don’t post news in my blog, but this sounds like a fantastic idea. Amazon is testing drones that could deliver up to 5 pounds per flight (which covers 86 % of all Amazon sales). The service, called Prime Air, could be available within five years if the ongoing series of tests is successful and the necessary FAA permissions are obtained. As an ebook author, I wonder though what impact this will have on the ebook market. Will people go back to print?

Amazon: “Amazon customer service, how may we help you?”

Customer: “Your damned drone put my package on the roof again!”

Here’s a picture of Amazon’s “Octocopter”:

(Taken from regmedia.co.uk)

You can find more info on BBC: http://www.bbc.co.uk/news/technology-25180906

Types Of Federal Student Loans

Students who look for financial aid during studies either go for federal student loans or private student loans. Federal student loans are offered by the US government, which are available directly through banks, student loan lenders, schools or from the Federal Family Education Loan program (FFELP). Federal loans are offered with very low interest rates, longer repayment periods and various kinds of repayment options with simpler credit requirements than private loans. In case of federal subsidized student loans, the interest is paid by the government to the financial institution while the student is enrolled as well as during a grace period. A federal loan may not be enough to cover all the expenses of the student and in that case, the student might have to take an additional private student loan. Note that the student will not get the full loan amount applied for and should only take the actual amount into account while preparing the budget.

There are different kinds of federal student loans from different institutions. Hence, it is advisable to take the guidance of parents or other financial aiding sources to decide on the type of federal direct student loan that suits the student the best.

Perkins loan option:

This loan is available for undergraduates and graduates in need at a fixed lower interest rate of five percent for a repayment period of ten years. The loan limits for undergraduates are $5,500 per year and $27,500 per lifetime. For graduate students the limit is $8,000 per year and $60,000 per lifetime (including undergraduate loans). The funds are handled directly by the school, making it easier to get the amount as soon as the student enrolls.

Stafford loan option:

This is the most common federal student loan and anyone can apply for it. It offers fixed interest rates and is available in the subsidized and unsubsidized form. When making use of the subsidized federal student loan, the government pays the interest while the student is enrolled. In the case of unsubsidized federal student loan, the student has to the pay the interest but can wait with payments until he completes his or her graduation. The interest rate for unsubsidized loans is currently at 6.8 %. Students applying for a Stafford Loan must complete the FAFSA (free application for federal student aid). Stafford Loans are available directly from the United States Department of Education through the Federal Direct Student Loan Program (FDSLP). It is important to apply much earlier than the closing date for the application to avoid any last minute trouble.

PLUS loan option:

Also known as parent loan for undergraduate students. It is given to the parents of undergraduate students who are dependent and have enrolled at least half-time. This loan option requires the applicant to be free from any adverse credit experiences like bankruptcy, default etc on their credit record. These loans are offered at a fixed interest rate that is higher than the Stafford loan rate and repayment starts while the student is enrolled.

For more information on student loans check out my post about Student Loan Consolidation.

Inflation: How long does it take for prices to double?

A question that often comes up is how long it would take for prices to double if the rate of inflation remained constant. It also helps to turn an abstract percentage number into a value that is easier to grasp and interpret.

If we start at a certain value for the consumer price index CPI₀ and apply a constant annual inflation factor f (which is just the annual inflation rate expressed in decimals plus one), the CPI would grow exponentially according to this formula:

CPI_n = CPI₀ · f ⁿ

where CPI_n symbolizes the Consumer Price Index for year n. The prices have doubled when CPI_n equals 2 · CPI₀. So we get:

2 · CPI₀ = CPI₀ · f ⁿ

Or, after solving this equation for n:

n = ln(2) / ln(f)

with ln being the natural logarithm. Using this formula, we can calculate how many years it would take for prices to double given a constant inflation rate (and thus inflation factor). Let’s look at some examples.

——————–

In 1918, the end of World War I and the beginning of the Spanish Flu, the inflation rate in the US rose to a frightening r = 0.204 = 20.4 %. The corresponding inflation factor is f = 1.204. How long would it take for prices to double if it remained constant?

Applying the formula, we get:

n = ln(2) / ln(1.204) = ca. 4 years

More typical values for the annual inflation rate are in the region several percent. Let’s see how long it takes for prices to double under normal circumstances. We will use r = 0.025 = 2.5 % for the constant inflation rate.

n = ln(2) / ln(1.025) = ca. 28 years

Which is approximately one generation.

One of the highest inflation rates ever measured occurred during the Hyperinflation in the Weimar Republic, a democratic ancestor of the Federal Republic of Germany. The monthly (!) inflation rate reached a fantastical value of r = 295 = 29500 %. To grasp this, it is certainly helpful to express it in form of the doubling time.

n = ln(2) / ln(296) = ca. 0.12 months = ca. 4 days

Note that since we used the monthly inflation rate as the input, we got the result in months as well. Even worse was the inflation at the beginning of the nineties in Yugoslavia, with a daily (!) inflation rate of r = 0.65 = 65 %, meaning prices doubled every 33 hours.

——————–

This was an excerpt from “Business Math Basics – Practical and Simple”. I hope you enjoyed it. For more on inflation check out my post about the Time Value of Money.

How Does Student Loan Consolidation Work?

Nowadays, the cost of higher education is getting more and more expensive. Some families may not be able to afford further education for their son or daughter. Getting a student loan will help.

There are 2 broad categories of student loans available. Government student loans and private student loans

Government or federal student loans are funded and administered by the US Department Of Education. It is classified under Federal Student Loans Aid Program. They have very few requirements other than you are studying in a US college or university. International students may also apply though approval is on a case by case basis.

Every year, the student loan aid program disburse nearly 60 billion dollars so it is a good choice for get a student loan from the government. The interest rates on federal loans are pretty low.

Private student loans are funded and administered by banks and other financial institutions. These lenders provide student loans at a higher interest rate compared to federal student loans. Some common student loans available are from Citibank and Sallie Mae

You are allowed to apply for both private and federal student loans for your education needs although I would not recommend it.

For some students who have a few student loans to repay concurrently, it can be a financial drain on their family finances. That is where student loan consolidation comes in.

Student loan consolidation basically consolidates all your student loans into one loan so that it is easier to manage and make payments. When you are getting a student loan consolidation whether from the government or the private market, your existing student loans are paid for and erased by the student loan consolidation lender. The balances are transferred to the new student loan consolidation. Thus you start a new loan and only needs to make a single payment each month.

There are many advantages to using student loan consolidation. The interest rates will be lower since it takes the average interest rates of your previous student loans. Thus due to government legislation, the maximum interest rate cannot be higher than 8.25 percent.

It becomes a lot easier to manage a single student loan and payment are easier. The repayment options are quite flexible. For federal student loan consolidation, you can opt to start repaying after you have graduated from school. There are also several other options.

Another beneficial side-effect of student loan consolidation is that it can also improves your credit score. Since you are effectively clearing all your old student loans and taking a new one, your credit score will increase and is important if plan to take other types of loans in the future.

You can apply for a consolidated loan here.

Whatever your choices may be, remember the words of Benjamin Franklin: “Knowledge pays the best interest”.

For more information on student loans in general check out my post about Types Of Federal Student Loans.

The Service Recovery Paradox – Customer Service At Its Best

Let’s say you buy a coffee machine. You go home, plug it in and it does what it’s supposed to do – make coffee. Depending on how easy it is to use, how well the coffee tastes, etc … you experience a certain level of satisfaction. Now suppose one day the coffee machine suddenly stops working. Obviously, your satisfaction will drop sharply. You call customer service and after a lot of try this and try that, all eating up your precious time, it works again. Your satisfaction will rise again, but not to the initial level. You might even decide that next time you’ll not buy from this company again, they don’t seem to be able to provide functioning machines.

This is how the story usually goes. But there’s a very interesting paradox that can lead to a surprising outcome. Given certain conditions (see below) and an exceptional customer service, studies have shown that after the failure the level of satisfaction can rise above the initial level. In other words: customers who have experienced a problem with the product and have been successfully helped by the manufacturer’s customer service can be more satisfied with the company than those customers who have not experienced any problem at all. This is called the service recovery paradox. A widely cited work regarding this paradox by Hart et al. (1990) in the Harvard Business Review states: “A good recovery can turn angry, frustrated customers into loyal ones. It can, in fact, create more goodwill than if things had gone smoothly in the first place”.

I made a crude graph to visualize this situation. Note that in a standard recovery the level of satisfaction rises, but not beyond the initial value. This is the situation we usually experience. A paradoxical recovery propels the level of satisfaction past this initial value.

There are some conditions that need to be met in order for the paradox to be able to occur.

The effect of the severity of the failure

 According to McCollough et al. (2000), satisfaction varies with the severity of the failure. Many service problems that customers experience are only mildly annoying, while others can be very severe. Hoffman et al. (1995) state that the higher the severity of the failure, the lower the level of customer satisfaction. Consequently, the existence of a recovery paradox depends on the magnitude of the failure. For example, perhaps an apology, empathy, and compensation could create a paradoxical satisfaction increase after a 20-minute wait at the front desk of a hotel. But would this paradoxical increase occur if the wait caused the guest to miss a flight? It is unlikely that any realistic recovery is capable of completely erasing the harm caused by such a severe failure.

In the event of a service failure, a recovery paradox is more likely to occur if the service failure is less severe than if the failure is more severe.

The effect of a prior failure

 A person’s satisfaction is a cumulative evaluation of all experiences with the firm (Cronin and Taylor, 1994). If the service failure occurred in a one-time only use, then the satisfaction judgment would be transaction-specific. However, an individual generally has a history of interactions with the firm, in which case satisfaction reflects the cumulative interactions over time between the individual and that firm (Bitner and Hubbert, 1994; Crosby and Stephens, 1987).

In the event of a service failure, a recovery paradox is more likely to occur if it is the firm’s first failure with the customer.

 The effect of the cause of the failure

 Service failures with persistant causes are more likely to repeat than failures with temporary causes. For example, when a hotel guest is assigned to an incorrect room category due to an outdated computer system, this could be considered a failure with a persistent cause. On the other hand, if the guest’s room assignment was botched because the front desk associate is in the initial stages of training, this could be viewed as an temporary cause. Customers are likely to be more forgiving of failures with temporary causes (Kelley et al., 1993). This is because the likelihood of a future inconvenience is minimal. Thus:

In the event of a service failure, a recovery paradox is more likely to occur if the customer perceives that the failure had a temporary cause.

The effect of perceived control

A service failure is any situation where something goes wrong, irrespective of responsibility (Palmer et al., 2000). Nevertheless, “the perceived reason for a product’s failure influences how a consumer responds” (Folkes, 1984, p. 398). Customers are more forgiving if they perceive that the firm had little control over the occurrence of the failure (Maxham and Netemeyer, 2002). Conversely, customers are less forgiving when they feel that the failure was foreseeable and should have been prevented (Folkes, 1984). For instance, did a wait occur because of a random spike in demand, or did it occur because the firm did a poor job in forecasting, planning or staffing? A bank customer may be understanding of a wait inside a bank lobby if there is an unexpected inflow of customers during a typically slow hour. On the other hand, the same customer may be less understanding if there is only one teller working during lunch hour on a Friday afternoon. Thus:

In the event of a service failure, a recovery paradox is more likely to occur if the customer perceives that the firm had little control over the cause of the failure.

For more on customer service, check out the 7 Laws of Customer Service.

The 7 Laws of Customer Service

If you want to provide solid and helpful customer service, you should stick to a number of basic rules that make you stand out from the crowd. Here are 7 rules that can help in doing so:

1. Roll Out The Red Carpet For Everyone. If there’s one thing people hate about poor service, it’s getting treated differently from others. It makes them feel inferior and second-class. Gary Richter says you should roll out the red carpet for everyone, but particularly those who don’t expect it. “I tell my employees, if we roll out the red carpet for a billionaire, they won’t even notice. If we roll it out for millionaires, they expect it. If we roll it out for thousandaires, they appreciate it. And, if we roll out the red carpet for hundredaires, they’ll tell everyone they know.”

2. Take Time To Know Your Customers. The fast pace of modern living together with advances in technology have together put a non-human face on much of our customer service. If you can find a way to re-connect with your customers one-on-one, you’ll strike a chord with your customers that will be like a streak of gold. Kathy Burns remembers a time when people took time to care and listen. “Some of you may remember, and others may have heard stories about, a time in life when the doctor would come to your home to check on you if you were ill. Or maybe you’ve heard about going down to your local pharmacy and having the owner greet you by name and ask how you’re doing. Not only did they ask, but they really wanted to know the answer and they took the time to listen to what you had to say. That’s customer service – taking the time to know your customers, really caring about how they feel, and wanting to go the extra mile to make sure they’re happy.”

3. Be Easy To Do Business With. One of the problems with modern businesses is that the systems we use to save time and money are often devised for the company’s benefit and not the customers. As a result, the customer experience is frustrating and difficult. Tracey Lowrance says this needs to be reversed. “Customers expect single source service. Customers don’t want to be transferred to every unit of your business to have their problems solved. They want to be able to do business with you with the slightest amount of discomfort. You must be easy to do business with.”

4. Go Out Of Your Way To Make Sure They’re Happy. One of the most important things your customers want from you is a guarantee that your product or service will work. So move heaven and earth to make sure it does. Bob Leduc suggests you shouldn’t make people pay until they are fully happy. “Instead of offering a money back guarantee, a service business can provide a guarantee to solve the customer’s problem. For example, a plumber can guarantee to come back without charge as often as necessary to stop the leak. A landscaper can replace without charge any plants that don’t survive for at least 6 months. A sales consultant can continue working without charge until the promised sales results are achieved.”

5. Notice What Customers See. A big part of what customers think about you comes from what they see and believe. Personal Selling Power noticed the following difference in two candy stores. “Although two competing candy stores had the same prices, neighbourhood kids preferred one store to the other. When asked why, they said, “Because the person in the good store always gives us more candy. The girl in the other store takes candy away.” True? Not really. In the good store the owner would always make sure to put a small amount of candy on the scale and then keep adding to it. In the bad store, the owner would pile a heaping amount of candy on the scale, and then take it off until it hit the right weight. The same amount of candy was sold, but perception is everything.”

6. Work On Everything The Customer Experiences. The customer experience isn’t just receiving the service or buying the goods. It’s about all the other little bits and pieces in-between. Such as the manner of the receptionist, the state of the floors and tables, the attitude of other staff, the ease of parking, the tone of the notices, the smile or lack of it on the face of the checkout team. Be like the Mirage hotel in Las Vegas who have a slogan that says: “We spend 600 hours a week pampering the plants. Imagine what we’ll do for our guests.”

7. Believe In Customer Service. To become a great service organization, you have to believe in customer service from the bottom of your soul. It has to be part of the way you work. Anita Roddick, founder of retail cosmetic franchise group Body Shop puts it like this: “I am still looking for the modern equivalent of those Quakers who ran successful businesses, made money because they offered honest products and treated people decently, worked hard, spent honestly, saved honestly, gave honest value for money, put back more than they took out and told no lies. This business creed, sadly, seems long forgotten.”

If you’re interested in learning more about customer service, be sure to check out the Service Recovery Paradox.

Keywords: How To Use Them Properly On a Website or Blog

Because keywords help determine the ranking of your website, and therefore how visible your pages are to Internet traffic, it is important to use keywords properly in the creation of your blog or website.

In today’s world of Internet lingo, you may frequently hear the terms “keywords,” “search engine rankings,” and “keyword search results” bandied about. However, not everyone knows what keywords are, and how important they are to the success of a website.

Keywords are essentially words or phrases that summarize the topic of a site. When a Web surfer types a word or phrase into the blank field of a search engine such as MSN or Google, the search engine returns a list of related sites. Each site on this list is determined by the presence of the search terms, or keywords, in the site’s meta tags, image tags, and content.

Keywords and Meta Tags

Meta tags are like a site’s “dog tags.” They identify the site’s title, description, and keywords. Meta tags are invisible to Web surfers, but they are instrumental in a search engine’s recognition of the site’s content.

Title Tags

A title tag gives the title of the Web page. A title should only be around six words long, and the primary keyword – the word or phrase that the site is primarily identified with – should be in this title tag. The closer to the beginning of the title the primary keyword is, the stronger the association with that keyword will be.

Description Tags

A Web page’s description tag provides the search engines with a summary of the content contained on the page. Once again, the primary keywords for this page should be contained in the description, as close to the beginning as possible. Description tags only allow 200 characters of text.

Keyword Tags

The keyword tag lists all of the keywords that can be associated with the Web page. The primary keyword used in the title and description tags should be first, followed by other keywords in order of importance and relevance. Although keywords can be separated by commas, they don’t have to be; however, keywords should not be repeated more than three times, lest the Web page be rejected by the search engines as spam. Between 800 and 1,000 characters are allowed for keyword text.

Keywords and Image Tags

Image tags are the text that shows up in place of an image, if the image fails to load for any reason. However, image tags serve a more important function: they allow the search engines to “read” your images. Without image tags, search engines have no way of interpreting your images. Therefore, image tags can also help boost the visibility and relevancy of your site to search engines.

Keywords and Web Page Content

The tags that you use on a Web page are important identifiers for search engines. However, in order to maintain a respectable search engine ranking, your Web page must establish relevancy. In other words, the keywords in your tags must pertain to the actual content on the page. Therefore, the same keywords you list in your tags must be used within the text your page displays.

The most important part of the content is the opening paragraph. The primary keyword – the keyword that was used in the title and description, and listed first in the keyword text – should be used several times in the first paragraph, and then occasionally throughout the rest of the page. Other, less important keywords can be used occasionally throughout the content, as well. This will indicate to the search engines that your page really is relevant to the keywords listed in your tags.

Another way to judge keywords is via a concept called “keyword density.” Keyword density shows the frequency at which a keyword is used. The density is calculated by taking the total number of words and dividing it into the number of times keywords appear in the text. The resulting number is multiplied by 100 to create a percentage. Keyword density can be a tricky business, however. Too low a density will fail to be noticed by the search engines, whereas too high a density can cause a Web page to be rejected as spam. Typically, a keyword density of around 5% is sufficient.

The Importance of Keywords

Keywords are a vital part of the creation of Web pages because they directly affect how visible the page will be to search engine traffic. The presence of keywords needs to be a consideration in every aspect of designing a Web page: designing the tags as well as writing the content. Because of the impact keywords can have on the success of your site, it’s important to know how to use them properly.

Find out more on how to optimize your blog here: Increase Views per Visit by Linking Within your Blog.

Quantitative Analysis of Top 60 Kindle Romance Novels

I did a quantitative analysis of the current Top 60 Kindle Romance ebooks. Here are the results. First I’ll take a look at all price related data and conclusions.

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• Price over rank:

There seems to be no relation between price and rank. A linear fit confirmed this. The average price was 3.70 $ with a standard deviation of 2.70 $.

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• Price frequency count:

(Note that prices have been rounded up) About one third of all romance novels in the top 60 are offered for 1 $. Roughly another third for 3 $ or 4 $.

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• Price per 100 pages over rank:

Again, no relation here. The average price per 100 pages was 1.24 $ with a standard deviation of 0.86 $.

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• Price per 100 pages frequency count:

About half of all novels in the top 60 have a price per 100 pages lower than 1.20 $. Another third lies between 1.20 $ and 1.60 $.

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• Price per 100 pages over number of pages:

As I expected, the bigger the novel, the less you pay per page. Romance novels of about 200 pages cost 1.50 $ per 100 pages, while at 400 pages the price drops to about 1 $ per 100 pages. The decline is statistically significant, however there’s a lot of variation.

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• Review count:

A little less than one half of the top novels have less than 50 reviews. About 40 % have between 50 and 150 reviews. Note that some of the remaining 10 % more than 600 reviews (not included in the graph).

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• Rating over rank:

There’s practically no dependence of rank on rating among the top 60 novels. However, all have a rating of 3.5 stars or higher, most of them (95 %) 4 stars or higher.

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• Pages over ranking:

There’s no relation between number of pages and rank. A linear fit confirmed this. The average number of pages was 316 with a standard deviation of 107.

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• Pages count:

About 70 % of the analyzed novels have between 200 and 400 pages. 12 % are below and 18 % above this range.

The Time Value of Money and Inflation

To make a point, I’ll start this blog entry in an unusual way, that is, by talking about vectors. A vector is basically an ordered row of numbers. Consider this expression for example:

(12, 3, 5)

This vector could represent a lot of things. For example a point in a three dimensional coordinate system, with the vector components being the x-, y- and z-values respectively. Or for a company offering three products, it could stand for the sales of these products in a certain year.

Why this talk about vectors? You were probably very surprised when you heard grandma say that she paid only 150 $ for her first car. It seems so amazingly cheap. But it is not. Your dear grandma is talking about 1950’s money, while you are thinking of today’s money. These two have a very different value.

If you want to specify the costs of a good precisely, merely giving an amount of money will not be sufficient. The value of money changes over time and thus to be absolutely precise, you should always couple this amount with a certain year. For example, this is what grandma’s car really cost:

(150 $, 1950)

This is far from (150 $, 2012), which is what you were thinking of when grandma shared the story with you. Using an online inflation calculator, we can conclude that this is actually what the car would cost in today’s money:

(1410 $, 2012)

Not an expensive car, but certainly more than 150 $ in today’s money. Now you can see why I started this chapter using vectors. They allow us to easily and clearly couple an amount with a year. A true pedant would even ask for one more component since we are still missing the respective months. But let’s not get too pedantic.

How can we justify saying that 150 $ in 1950’s money is the same as 1410 $ in today’s money? We can look at how much of a certain good these amounts would buy in the given year. With 150 $ in 1950 you could fill your basket with about as many apples as you can with 1410 $ today. The same goes for most other common goods: oranges, potatoes, water, cinema tickets, and so on.

This is inflation, goods get more expensive each year. At a later point we will take a look at what reasons there are for inflation to occur. But before that, let’s define the rate of inflation and see how it is measured …

This was an excerpt from the ebook “Business Math Basics – Practical and Simple”, available for Kindle here: http://www.amazon.com/dp/B00FXB8QSO.

Article Marketing Myths And Facts

By now everyone has heard of article marketing and so many people out define it in so many different ways there that it has become hard for people new to article marketing to understand.

In general, article marketing is where you write an article on a topic that is related to your website topic. Not a promotional article for your website, but an article about something that is informative to the reader. In the article you use keywords and phrases that relate to your topic as well, much like you would optimize a webpage. Your article when reprinted will be the text of a webpage or webpages.

In the author bio section at the bottom is some info about you and links to your website. It is suggested that you put in one link to your main page and one to an interior page that fits the article you are writing.

If your article is submitted to websites that take article submissions and offers free content to webmasters, then webmasters choose to repost your article on their websites, the links in the author bio section become links from their websites to your website.

Now lets go on to the myths and facts about article marketing.

MYTH: Article marketing doesn’t really help you all that much.

FACT: Article Marketing can help you increase your link popularity and be a source of some of the most targeted traffic you can get.

MYTH: Reprinted Articles only get indexed as supplemental pages, therefore it doesn’t help enough to make it worthwhile.

FACT: Depending on where the article gets submitted to, the article itself can get a top 10 listing in major search engines and not as a supplemental page.

MYTH: Submitting your article everywhere creates duplicate content and the search engines will punish or discount those pages as a result.

FACT: If search engines punished duplicate content in the way that myth suggests then all rss feeds that cause a post in a blog to be reproduced to be discounted or published and they are not. The New York Times articles and CNN stuff is blasted all over the web and are not punished or discounted.

Duplicate content is two webpages that are around 70% similar, not two webpages that have similar text on them.

MYTH: The only way article marketing works is you write an article then submit it to thousands of article submission websites.

FACT: There is more than one way to make article marketing work for you. The way mentioned above works okay if you are looking to get a lot of links back to your website whether they are related or not and can be effective if you currently have very little or no link popularity at all.

Another way is to hand submit your article to article submission websites that only accept articles related to your topic. This is more difficult but the links help you more just through the submissions and it’s more likely that the websites that pick up and repost your article will be also related to your topic which can help you with better links and targeted traffic.

Yet another way is to write a very high quality article that you really take your time on and research. You then choose a very high traffic website related to your topic. One that has great PR and a lot of visitors.

Email them your article and offer them an exclusive if they will print your article with your links included in the bio. If your article is of good quality and they get an exclusive you have a good chance they will post your article there.

This one posting of your article can be more powerful than the mass submitted article method if you choose the website you submit it to carefully.

Last but not least, posting your article exclusively on your own website is a great way to add fresh content and if the article is good, people will link directly to the article increasing both traffic and PR for your webpage where you posted the article. But for this to work you need to already have some traffic to work with.

MYTH: You should always post your article in your website first, then wait to get crawled by the search engines before submitting the article elsewhere.

FACT: Adding articles to your own website is called adding content. Submitting those articles to other websites is called article marketing. With article marketing you don’t want the article indexed on your website first.

Yes you read that right. You do not want the article indexed on your website first. You are or should already be doing SEO on your website and adding fresh content to your website for the search engines to get traffic from them.

Submitting articles to other websites and having the search engines find it there first gives another gateway that people can find your website through.

If the websites that you submitted your articles to get crawled often, then having your article appear there with the links intact will get your website crawled as well.

If the websites you submitted your article to are getting indexed well by the search engines, then your article being found on their website first might get it in the top 10 results.

Placing it into your own website with no or low PR might not have gotten the article indexed at all.

I hope this article will clear up some of the myths about article marketing and that it has helped you understand how and why it works.

From Simple to Compound Interest

Imagine you loan a bank the principal P = 10000 $ at an interest rate of i = 5 %. This is the amount of interest you would receive with simple interest, given the duration t of the loan:

t = 1 year
→ I = 10000 $ * 0.05 * 1 = 500 $

t = 2 years
→ I = 10000 $ * 0.05 * 2 = 1000 $

t = 3 years
→ I = 10000 $ * 0.05 * 3 = 1500 $

As you can see, the interest grows linearly with the duration of the loan. For each additional year, you get an additional 500 $, which is just 5 % of the principal 10000 $. In other words: each year the interest rate is applied to the principal. How could that be any different?

Consider this: At the end of the first year, you’ll receive an interest payment in the amount of 500 $. This means that your bank statement will now read 10000 $ + 500 $  = 10500 $. So why not apply the interest rate to this updated value? This would lead to an interest payment of 10500 $ * 0.05 = 525 $ for the second year instead of just 500 $.

Continuing this train of thought, at the end of the second year your bank statement would read 10000 $ + 500 $ + 525 $ = 11025 $. Again we would rather have the interest rate applied to this updated value instead of the unchanging principal. This would result in an interest payment of 11025 $ * 0.05 = 551.25 $ for the third year.

For comparison, here’s what the final pay out would be for the simple interest plan:

10000 $ + 500 $ + 500 $ + 500 $ = 11500 $

And this is what we would get with the “not simple” interest plan, where we apply the interest rate to the updated amounts instead of the principal:

10000 $ + 500 $ + 525 $ + 551.25 $ = 11576.25 $

The latter is called compound interest. It means that we include already paid interests in the calculation of next year’s interest, which leads to the amount received growing exponentially instead of linearly.

(This was an excerpt from “Business Math Basics – Practical and Simple”. You can get it here: http://www.amazon.com/Business-Math-Basics-Practical-Simple-ebook/dp/B00FXB8QSO/)

Bankruptcy And Students: Many Students Fail To Pay Off Their Debt

Young people in their early twenties, of which many are students, are becoming a fast-growing number of bankruptcy filers. Bankruptcy and students seems to be becoming a problem, and according to recent surveys, it is believed that teenagers younger than nineteen years of age own at least one credit card of their own. Also, it is reported that two thirds of undergraduate students have a minimum of one open credit card account, and it is believed that the average student graduates owes three to four thousand dollars in credit card debt along with other debts.

Managing Student Finances for the First Time May be a Reason for Defaulting

With more college students being marketed credit cards, it has even made some states enact legislation that limits solicitation to college students and recent bankruptcy reform procedures are also concerned with addressing the problem of bankruptcy and students. The reason behind bankruptcy and students becoming a big problem could lie in the fact that college students are learning to live alone and manage their own money for the first time, and thus find it hard to keep track of their credit card purchases.

According to experts, people tend to shop more with credit cards than when spending cash. When interest, late charges, increase in minimum payments are factored in, it makes for difficulty in managing finances and thus leads to bankruptcy and students becoming a growing malpractice.

Bankruptcy and students loans that are not repaid can often make a student feel as if he or she has just graduated from the school of hard knocks. Bankruptcy is not the escape route that students may be thinking of taking in order to avoid paying back government backed student loans as well as school loans backed by non-profit agencies. These loans are not discharged in a bankruptcy and have to be paid back after bankruptcy, though if a student can prove (very difficult actually) that the loan constitutes a considerable hardship, it can be got rid off without repayment.

Student loans, under normal circumstances, cannot be discharged under any chapter of the Bankruptcy Code. By using loopholes in government legislation, bankruptcy seems to offer an escape route to avoid paying off student loans, and the number of students that used bankruptcy to avoid paying off their debts increased dramatically over the recent past few years.

The bottom line is that it is the bankruptcy judge that has the final say, and for the lucky student, the odd bankruptcy judge may allow him or her to discharge the loan by filing for bankruptcy. Lenders too, cannot send their bills to a student who is in bankruptcy and need to wait till the case is decided. Often, it is better for the student to deal directly with the lender and find a mutually agreeable way of settling the debt, rather than going in for bankruptcy to avoid repayment.