In the few short years the World Wide Web has been open for business, banner advertisements have grown from a mere blip on the screen to a $2 billion industry. The ubiquitous flashing squares--now used to sell everything from computers to Beanie Babies--are arguably the most interactive form of advertising ever. Clicking on them allows netizens to link to more product information, submit orders, and even talk to online customer service reps. For Web-savvy entrepreneurs, banners provide an important new way to target potential patrons and get a leg up on larger competitors.

Banner Exchanges
Banner-swapping services are the cheapest way for a small business to get more eyeballs (read Bronwyn Fryer's "Your Message Here" in Inc. Technology #1 1999).

Here's how they work: companies like Link Exchange and SmartAge (which developed Inc. Online's own Inc. Clicks program) invite small businesses to send them banners, which are circulated for free to member sites built around similar content. If, for example, an exchange member sells golf attire, its ad may appear at a site that sells golf clubs. The attire business, meanwhile, might receive an ad plugging a golf-club swap for kids.

Banner exchanges usually only require that their members run the host's banner on their own site. Some exchanges, for a small monthly fee, will even register your site with search engines and track how many people click through to your site.

How effective is this method at building sales? On the upside, a banner exchange can bring your ad to the furthest corners of the Web and drive traffic to your site for free. The best will work hard to target your ad by learning about you and your customers. The downside? Banner networks often consist of smaller sites that get limited traffic; some exchange members may circulate poorly designed banners that clash with your site.

Paying Per Impression
The pay-per-impression model of banner advertising is like buying billboard space next to a highway--and then paying a rate based on the number of people who see your ad. The cost depends on two factors: how much traffic the host site gets and how much competition there is among advertisers to book space there.

Impressions--meaning the number of times a page with your ad is viewed--can cost as little as $5 per thousand or as much as $100 per thousand and up, according to Jim Sterne(President of Target Marketing and a consultant to companies trying to create internet strategies). The highest rates are charged by sites that offer content targeted to a particular visitor demographic.

Sterne says small businesses with a unique product or service usually get better results advertising on more specialized sites instead of at content aggregators such as Yahoo! that offer a wide variety of general interest material that in turn attracts a wide variety of visitors. A banner for a small bicycle business, for example, will likely do better at a popular Web site for bike enthusiasts than on the sports page at Yahoo!

The key is targeting your audience, according to Sterne. And that has never been easier than today, thanks to the Web.

"The Internet is really not a mass medium," he says. "It's lots and lots of micro-cultures."

Click-Throughs
Paying per "click through," or paying for a banner only when someone clicks on it to visit your site, usually costs between $20-per-thousand impressions to $70 (or more)-per-thousand impressions. Getting your money's worth out of this model means enticing visitors not just to visit your site but to buy your product or service once there.

Sterne says a banner with a good click-through rate has a message that's catchy but not enigmatic. An ad that asks, "Want to save money?" will deluge you with hits; however, if your business is selling magazine subscriptions at a discount, you won't get many orders. A better ad would be "Click here to pay half price for your favorite magazine." It's short, effective, and more likely to attract customers.

A fast-loading site is essential to getting customers to click on your ads. The instant someone clicks on an ad, it is registered as a "request" to the host site's server and billed to the client. A slow-loading site encourages impatient visitors to hit the "stop" button and surf away--meaning you'd pay, but without any pay off. Prevent this by running your site on a fast-loading server and keeping graphics to a minimum.

Paying Per Lead
The more you demand from your ad, the more you will pay for one, which is why paying per lead is one of the most expensive ways to advertise. Figuring out what constitutes a lead is entirely up to you and the site you advertise with. It could be someone who signs up for your company's E-mail newsletter, or fills in their snail-mail address to request more information. You can contract to pay your host only when you can verify the lead. Or, you can let the host site verify the leads for you at added cost.

The cost of leads depends largely on how hard it is to find customers in your industry. You can pay anywhere from a few dollars per lead to hundreds of dollars for one. However, the more difficult it is to find qualified leads in your line of business, the better this model will work for you.

"If you're selling a high-ticket item on a long sales cycle, paying someone else to find people can be very worthwhile," says Sterne.

Paying Per Sale
Paying per sale is more like hiring a cybersales rep than advertising. It's as simple as contracting to pay only when someone clicks on a link on the cybersales rep's Web site or banner ad and purchases something from your company. Amazon.com pioneered this model with its "associates" program, where Web sites with a link to the bookseller earn a commission for each sale if the visitor buys a book from Amazon.com.

Such affiliate programs are becoming a great way for small businesses to reach customers. Web-service companies such as Be Free and AssociatePrograms.com specialize in matching up small businesses online with like-minded Web sites interested in selling their products. Sterne suggests these programs, which act like customer referrals, could well be the future of Internet selling. For the first time, small-business owners can find one another new customers all around the world without ever having to leave their computers.

"It's like saying, I'll pay anyone out there [in cyberspace] to send me a paying customer," says Sterne. "It's almost comparable to a small store owner hiring people to drive around the city and pick up potential customers, at no cost to him."

How banner advertising will evolve is anyone's guess. One thing for certain is that the ads thenselves will only become flashier, more interactive, and more vital to the success of growing companies.