I got an email last week from a new site publisher asking how one determines ad pricing. “How do you figure out what CPM to charge?” was his exact question. Let’s take a stab at it.
“Whatever the market will bear” is the short answer to this question. But how do you get a sense of what potential advertisers and sponsors will go for and what they won’t?
We have no corner on the truth for that question, I’m afraid. We struggle with it every quarter when we update our media kit and every time we create a new ad vehicle.
The key to remember is that you don’t operate in a vacuum. From your client’s viewpoint, you operate within a particular context, generally having to do with the kind of audience you attract. You will be one of any number of sites that your client will probably consider for a particular buy. And you probably already know which sites they are.
So it’s helpful to know how other sites are pricing their ad vehicles compared to how you are pricing yours.
When we developed a pricing schedule for our opt-in lists, we got media kits from most of the B2B players, even those that were peripherally in our space: internet.com (before it acquired ClickZ), Industry Standard, Red Herring, and Business 2.0. We tried to get a good sense of what they charge, what their terms and conditions were, how complex or simple it was to make a buy, etc.
When we worked up pricing for text ads for ClickZ Forum and ClickZ Today, we took a look at what ICONOCAST, ChannelSeven, eMarketer, Online Advertising Discussion List, and I-Advertising Discussion Forum were charging and what the buyer got in return.
Sometimes, the range of pricing was pretty extreme. There are players out there who didn’t do their pricing homework and offered ad vehicles at ridiculously low rates. You don’t want to go there. Buyers may perceive there’s something wrong if you aren’t in the same ballpark, pricewise, as the other players. Would you trust a brand-new Jaguar that you could buy for $10,000? I’d figure there was something wrong.
We are an established player in the online marketing space, so we tend to charge the same rate or higher than the other players in our space. We also hope that in doing so, we establish a benchmark for our colleagues and competitors who will then feel comfortable pricing their ad vehicles in close proximity to ours.
But what about an emerging site publisher? Should it price its ad vehicles cheaper than its competitors just to get some cash flow?
My own philosophy is that it’s far better to price yourself a little high and come down gradually if that is where the market is moving you. Once you set a standard and expectation for low prices, it’s incredibly difficult — if not impossible — to increase your rates.
When ClickZ was in its infancy, there was no shortage of companies that approached us with cost-per-click and low-end CPM deals. They figured we were desperate, so what the heck. I didn’t want to set a precedent, so I steadfastly refused any and all deals until I could find the one I could live with.
You have to be stubborn, a little crazy, and very determined to turn away those cheap dollars in the early days. But my personal feeling was that those cheap dollars would turn out to be quite expensive if we became known as the place to go to for cheap advertising.
Since ClickZ was a moonlighting venture for the first seven months of its existence, we had our day jobs to pay the bills, so we could afford to go for months with no revenue. And thank God we didn’t have any investors breathing down our backs; otherwise, we would have had to make some short-term deals under pressure that may have cost us dearly in the long run.
But we decided early on that the most important things we needed to build were quality content and audience. Without them, we would never generate the revenues necessary to build a successful business.
Once we began working with some key sponsors who were willing to pay the price we felt that access to this audience was worth, it set a precedent for other companies we did business with in the future.
But what if you are in a space where most of your competitors are selling ad inventory for rock-bottom prices or for performance deals?
I’d say that you should have done your market research during the planning phases and determined whether it was going to be difficult to develop a profitable business in that competitive context.
That being said, however, you can also change the nature of the game by zigging as your competitors zag.
Develop a thorough understanding of exactly what ad vehicles your competitors offer and at what price, terms, and conditions. Then put on your thinking cap and focus on developing unique, effective ad vehicles that are in no way similar to what your competitors offer. Create something entirely different. Change the game.
One risk is that you won’t fit neatly into a media buyer’s spreadsheet — which is exactly the point. It gives you the opportunity to fully explain what it is you have to offer, to establish a unique space for what you do in the mind of the customer.
You move from being another line in a spreadsheet, a data point among many, to having a living, breathing space in the media buyer’s mind, especially if what you have developed is likely to be very effective in accomplishing the media buyer’s goals.
Stay fluid and responsive, and you will have the ability to set the pricing standard for the others in your space.
Next week, we’ll talk about how to find the right sponsors and advertisers for your site. Stay tuned…
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