Saturday, August 13, 2011

How much to charge advertisers? As much as possible

Many digital news entrepreneurs have no idea how much to charge for the advertising on their sites.

To set a fair price you have to balance the interests of both the publisher and the advertiser. A fair price should represent the full value of service to the advertiser as well as a just reward for the media outlet.

Generally, Google’s Adsense will not give a publisher a decent price that reflects the content’s value. Adsense is an auction that favors the buyer of advertising since the supply of potential ad space is virtually unlimited.

Cost per thousand impressions

A traditional method for establishing the cost of an ad is the cost per thousand impressions, or CPM. An impression is recorded each time a user visits a page that shows the client’s ad

For example, if the main page of your website receives 10,000 visitors per month and your ad rate is $7  cost per thousand, you would bill the client $70 for the month (10 times $7).

The rate you can charge depends on the type of content you have, which determines the type of audience you attract. Advertisers will pay more for some audiences than others.  (See the graphic at left and this link for some examples of CPMs.)

For example, financial sites, which have an audience of decision makers and people with money to invest and spend, can charge a premium. Their users decide what type of computers the company uses, which airline employees use, which cellphone service, etc.

Also an audience of business owners and executives has personal buying power. It appeals to advertisers of travel, clothing, jewelry, luxury autos, restaurants, MBA programs, leadership conferences, etc.

NOTE: whatever you charge has to take into account what competing media in your area are charging. Media buyers know those rates and will certainly tell you if your rates are above or below market. My advice is to charge above the market. You can always go lower. It is harder to raise prices.
UPDATED 2014 CPM and CPC rates 

Specialized niches

A hyperlocal site might be able to charge higher CPMs than a daily newspaper. Why? For a local retailer the audience of a hyperlocal is more concentrated and contains more likely customers; the daily newspaper’s site has many users who will never be customers of that retailer.

A site specializing in the environmental might be able to get handsome CPMs from companies that want to advertise their green products or environmental activities. For these media, standard newspaper CPMs do not work. They should be able to charge more.

Other measures

CPMs are sometimes replaced on the web by such measures as cost per click, cost per lead and cost per transaction. 

If you charge based on cost per click on a client's ad, you should keep in mind that the click-through rate on most online ads is in the neighborhood of half a percent.  In other words, only five users out of a thousand click on an ad. But those five will be valuable to the advertiser. However, advertisers are sometimes wary of click fraud by publishers who have employees click on a client's ad.

Even more valuable are the leads generated from ads, such as when a potential client fills out a form or requests more information from an advertiser. At the moment, the going rate is $30 to $50 per lead. 

And if the web user actually buys something through an ad on the site, that is the most valuable of all. A publisher can charge a fixed fee per sale or take a cut of each sale.

Control the story of your site

As the publisher, you need to control the advertising sales story of your website; that is, you need to decide whether you are going to emphasize the top-line number of total users and total page views or the loyalty number of return visitors and how much time they spend on your site.

There are advertisers appropriate for each type of sales story.


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