How much to charge for advertising on your website?Pricing your available advertising space is not an easy task since there is no standard pricing structure that can fit all websites. Each website, each blog, each content provider that uses advertising as their primary, or one of the sources of revenue, are different. Advertising on a fly-fishing site is different from advertising on a music-downloading site. These are some of the aspects you should consider when determining the ad rates:
Site MetricsA website is measured by the quality of its contents, traffic and visitors.
1. ContentsThe contents of your website is the core of all activities. It attracts both visitors and potential advertisers. The definition of content differs from one website to another and from one industry/category to another. It could be articles, songs, games, forum posts, photos, etc. It is your primary product so be sure to dedicate your effort and attention to continuously improve and expand it. The objective is to generate more contents with high quality, relevance, usefulness to attract more visitors and advertisers.
2. TrafficFirst, the more visitors you have, the more attractive your website is to a potential advertiser. Second, the higher traffic you have, the more money you will earn from your advertisers. The most basic traffic information you must know is the total number of monthly page-views and visitors. One ad view is counted as one impression. If a page contains 4 ads, there will be 4 ad impressions per page-view. You need to understand that web traffic is not equal in quality. Some is more desirable than other. For a local advertiser, visitors from a foreign country maybe irrelevant. Moreover, many locations and countries are known to generate fraudulent and inflated clicks so advertisers will want to target their ads to certain areas only.
3. AudienceHow much do you know about your visitors (age, sex, locations, interests)? If you have a large audience base with similar interests, you will have a better chance to find advertisers with relevant products and higher ad rates. When advertisers know exactly whom they are promoting their services and products to, they are more likely to commit to a higher ad rate, a longer display time or a larger advertising contract.
Pricing ModelsThese are some of the most popular ways to charge for your advertising space:
1. CPA (Cost Per Action, Cost Per Acquisition, Cost Per Lead, Cost Per Purchase)The advertiser is charged every time a visitor makes a transaction or purchases a product. These conversions are reported to the advertiser. Publishers can either set a price for each conversion or let the advertisers choose their price. Advertisers like this model since it offers the highest quality and return on investment. Advertisers often control the pricing with this model. For example, a lead to book a cruise can be worth $50 or more. It means the advertiser will pay you $50 when a visitor successfully calls/asks about a cruise when looking/clicking on their cruise ad from your website.
2. CPC (Cost per Click)The advertiser is charged for each click on their ads. Clicks are priced from as low as $0.01 to more than $10 per click. Either publisher or advertiser can set the price. However, one of the concerns for advertisers with this model is click frauds. In this scheme, click counters are inflated artificially to drive up the advertising cost. Publishers should use an ad server with click-fraud prevention technology to offer protection for your advertisers.
3. CPM (Cost Per Mille, i.e. Cost Per Thousand Impressions)The advertiser is charged per thousand impressions. It is one of the more popular model among medium-to-large publishers. Advertisers do not have to worry about inflated clicks as in the CPC model. At a $5 CPM, 10000 visitors a month with an average of 5 ad views each will earn $250. CPM is a very viable model when a publisher has more than 500,000 impressions per month. For smaller advertisers, number of available impressions can be low because of different targeting criteria, including frequency capping, geographical targeting to prevent exceeding advertising budget and yet maintain a high quality traffic. The downside with the CPM model is there is no consideration for clicks, conversions and ultimately purchases.
4. Flat RateThe advertiser pays a fixed price to display an ad for a period of time. This is popular among smaller publishers and advertisers because it is the simplest model with very predictable earning/expense. Publishers present their website metrics (page views, audience reports, CTRs) to the advertisers and name their advertising rates. Advertisers consider the pros and cons and make a decision to purchase an ad space for a period of time, often one calendar month at a time. Rates depend on the expected traffic, ad placement location, ad dimension/size, and length of contract. Since the earning is known ahead of time, publishers can focus on other areas of their website. This model allows both publishers and advertisers to budget their costs and predict their profits.
5. Hybrid or Combination of Multiple ModelsWith advanced ad servers like AdSpeed Ad Server, you can combine multiple pricing models to work for both you and your advertisers. For instance, $1000 per month plus $1 per click is a combined model of Flat and CPC. It means the publisher will have some guaranteed income (Flat) while earning extras on the clicks (CPC). The advertiser can enjoy discounts on the flat rate while providing incentives for performance.
AdvertisersUnderstanding your advertisers is one of the key factors in winning their contracts. If you know their services, products, advertising objectives, requirements, needs and goals, you can make your offer that much stronger by emphasizing the quality of your audience to smaller advertisers, or highlighting the number of page views (i.e. reach) to brand builders.
1. Number of AdvertisersIf you have a large network of advertisers or a good sales team that can approach many advertisers, you have more demand for your given ad inventory and you can charge more for advertising. Thus, it is always a good idea to build, maintain and expand your list of potential advertisers.
2. Product CharacteristicsCPC and CPA rates for a diamond advertiser are likely much higher than ad rates for a toothpaste ad. Knowing the products/services can help target the right section of your website.
ResearchAfter reading about different pricing methods, determine the best pricing model for your business. Find similar sites to your website and do a little research on their pricing. Put yourself in the shoes of a potential advertiser. The objective is to find a popular, relevant, high-quality website or blog at a reasonable ad rate.
Price ComparisonA really simple and effective formula for an advertiser to compare between one site to another website is: cost of the advertising space divided by the traffic that the ad will receive. The lower CPM rate the better. Let us consider these two blogs:
- Blog #1: charges $500 monthly for a 125x125 banner spot above the fold. It generates 100,000 monthly page views.
- Blog #2: charges $1,000 for a similar ad placement. It generates 500,000 monthly page views.
- Using the formula cost of advertising/traffic, Blog #1 has a $5 CPM while Blog #2 has a $2 CPM.
- Even though Blog #1 charges only half the price of Blog #2 upfront, it's actually less effective. Blog #2 is a better platform for advertising because of its high traffic and lower CPM rate.
Try to determine an appropriate rate for your own website. If you charge too much, advertisers will go elsewhere. If you charge too little, you are not maximizing your advertising potential.
Price AdjustmentsAfter determining your expected rate, you can start to offer advertising to a few potential advertisers. Everything needs a starting point. You do not have to stick to a single pricing forever and you can always adjust your price over time. However, if your website is recently launched, try to offer promotions and discounts in order to build your advertiser network.
For example: You can start charging a low CPM for the first 3 - 6 months to let advertisers test-drive the effectiveness of their ads. Or you can charge a low CPM then gradually increases the rate as your traffic improves. You can provide incentives for early advertisers to lock in the low rates. However, communicate clearly to your advertisers on these price changes and your reasons. You want to build long term relationships with your advertisers.
Take the First StepDetermining the optimal advertising rate is a tricky business. This simple blog post offers you a head start on determining your rates. As you have more experience with advertising and the advertisers for your industry, you will find more factors that affect your rates and make appropriate adjustments. Good luck with your venture!
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