Pricing strategies that maximize online display revenues

To get the best thinking from the field on pricing methodology, we interviewed 15 sales managers of sites with at least 10% of revenue from digital and 60% sell through rates. Here is their practical advice on pricing models that work:

1.Uncouple forced buys and sell every impression.

 A forced buy “throws in”  thousands of online impressions to support a legacy media buy teaching the advertiser that online has no value.   Bundling or packaging is different in that:

*The price takes into account includes a standard CPM rate structure, which is always higher than purchasing print alone.

*The advertiser can see the separate and total value of all the pieces of the package, plus the overall discount.

Sound like a small difference?  Two years ago, SunMedia in Canada, decided to change its model and require that all inventory be “sold” rather than merely accounted for as part of a package. “Selling” the impressions resulted in an increase in CPM’s value from $5 to up to $22.   For typical newspaper CPM's look at the "good, better, best" model below. 

2.Replace small and mid-sized “run-of-site” buys with targeted buys.
All ad directors in our sample are moving away from random run-of-site buys in favor of targeting, whether by site content category, demographics or behavior.
Advertisers can’t “see” their ads when they run too infrequently, especially on high traffic sites. Buying up specific areas for shorter periods of time solves this problem and optimizes reach and frequency. Reserve run-of-site advertising for major buys and or additional support for more targeted campaigns.

3. Create a broadcast model with limited inventory.
Current pricing models look more like radio and broadcast, selling "audiences" instead of inventory.  Since the audience (and inventory) is limited,  prices can be either set to increase sell-through or raised to reflect the high demand for a particular demographic. One ad manager keeps a white board in his office with the floating prices, and tells new advertisers they may get bumped if they pay a $10 cpm, but can lock in their “share” at a higher rate. Two advertising directors said they dropped rates slightly to create the sell through, and were able to raise prices as they approached the 60% mark. 

4. Transition to selling “Share of Voice”
Once inventories are established, selling “share of voice” is the logical next step. Key to this strategy is the creation of scarcity.  Break out audiences by either areas of the site  or targeting, and divide them into four to eight blocks that represent Share of Voice for that audience. Advertisers are told they will can buy all of the audience or split it with one or more advertisers.

While CPM pricing is factored in to share-of-voice (see “good, better, best rates” below) SMB’s are buying the share, not the CPM, and unlike agencies, may never discuss CPM at all.

5. Have “good, better, best” packages as starting points, then customize
While packages vary with the products by market, managers still break packages into of three tiers that match their classifications of advertisers as small, medium or large based on their size and type of business.

Hyper-local directory sales, which can be packaged in to the larger buys, or sold on their own as “feeder” or “starter” sales, for customers interested in SEO and SEM. 

Most SMB’s will not ever need to know  actual CPM pricing, but CPM pricing needs to be created at the meta-level of packaging to establish a business model. This helps for modeling revenues at different sell through rates, and also in selling products that have a CPM-based revenue share such as some rich meda ads or CMS systems.

Also,  these packages give sales reps  a head start on how to group products and establish investment levels without re-inventing the wheel on every sales call.

Here is a basic example from one market:

Good: For starter advertisers, small businesses and one day events
10,000 CPM in the $20 to $25 cpm level and aimed at small businesses with specific targets (zip codes or site areas) and/or short campaigns (sales, specials and events).

To get these prices there has to be a specific target in which the customer can still “own” a significant share of voice. Either by a channel on the site, or geo or demographic targeting. Some sites shorten the campaign to a week to get a high share of voice for the money.

Better: $12 to $15 CPM for 20,000 to 100,000 impressions
These buys are typically larger share of voice buys, a week extended to a month, the entire channel as opposed to a 50% share and so on.

Best: $10 to $12 CPM for 100,000 to 500,000 impressions
These larger buys purchased by larger advertisers on a share of voice model often include the front page pull-downs.

Note: Rich media ads command higher CPM’s, see below. Also, typically very large buys of 500,000 or more and using 1/3 or more of site traffic  common on many sites, and have lower, negotiated CPMs. Top categories for these mega-buys are auto and major appliances (which routinely offer changing discounts) financial and hospitals.


6.Charge a premium for targeting

A variety of options for targeting more specific audiences increases perception of value and allow for premium pricing, in the range of 20%:

*Behavioral targeting to reach prospects that are “looking,” through Yahoo’s targeting tools
*Categories on the site such as dining, sports and so on
*Tracking demographics (sex, age, income, zipcod) through pop-up questions using software such as Zag.
*Remarketing to the category of high-conversions or sales from a prior campaign
*Geo-targeting by IP address

Sites without a Yahoo partnership can still charge a 20% premium for geo-targeting using Zag pop-up boxes. An even  tighter-cut of the audience can be based on results from sales from previous campaigns. Optimizing the overall campaign may mean cutting out areas that do not deliver, and investing more heavily in audiences that do...at higher rates. 

Ad directors say Yahoo partnerships have been instrumental in generating large revenue gains. In fact, newspaper sites identified the partnership as their single most important source of incremental online revenue.


7. Offer rich-media ads at premium prices

Anything that floats, talks, interrupts the page, or looks like news are examples of rich media ads. These ads have statistically higher response rates (although this has been hotly debated) of as much as 45%. One small newspaper site in the southeast sells site “wrap around” ads for $1000 a week to major events in the area.

If your organization does not have the capability to create rich media ads, or else spends too much internally to justify this tactic, there are several third party suppliers including  Impact Engine, who offer to create these ads on the fly for a flat fee or revenue share, such as $3 CPM. Rich media has with home page placement can sell for as much as $25 to $35 CPM’s.

8. Use sponsorships to add value
Sites with large inventory are moving away from sponsorships or fixed ads as an overall pricing mechanism.

However, they still sell high-value sponsorships of contests and smaller, targeted areas of the site, such as a contest, medical channel, blogs or twitter feeds especially when the targeted audience much more valuable to the client. A $35,000 sponsorship of a “Cutest Babies” contest, for example, may not work from a CPM standpoint, but a Children’s Hospital may have picked up a large share of 700 families with small children, a much greater value than “eyeballs”.

To preserve saleable inventory, a “presented by” icon  leaves valuable CPM inventory in place. Sponsors can pay additional rates for extra ads and exclusivity.

10. Limit – or create – ad inventory to support pricing
If you have 10 ad units on every page, that’s ten times the pages views in the inventory; and unlimited inventory means is at odds with the scarcity model. So controling the inventory is part of the pricing strategy.

Sites with inventory in the range of 1.5 million page views are running only two large ads per page (a banner and a rectangle) and using the share of voice model to split the traffic. Another option is to add one to two full run of site positions for large advertisers and/or national agencies such as BIM (in the case of a very large television site KCRJ.com). 

A rule of thumb to start with: Create inventory that allows one position for national and large regional sales, two dominant positions (300 x250 or towers) for every 100,000 page views on a channel, and one position for remnant space to sold by ad networks.

Throw in some spots for google adsense territory as well.

Smaller sites, or dining channels with numerous small advertisers, paradoxically made need to run more positions to create enough significant buys. For example, if your site channel has at least 200,000 page views can easily support four to eight share of voice advertisers on each of its ad positions without adding additional spots.

A channel with only 40,000 page views on the other hand, can only support one mid-sized advertiser, or a few small ones,  and may need to add inventory. NOTE: Avoid splitting up the large 300x250 rectangle ads into anything smaller than half. It’s probably better to ad a second 300 x250, unless the ad has a dramatic offer.

10.Use ROI to support pricing.
In the end, advertisers want return on investment- ie customers in the door. All the studies show that is their top criteria over all other consideration. None of the media companies we talked to  required every  online ad to have an singular call to action and tracking mechanism and expectations pre-agreed on by the advertiser.However, many are getting close to this as a standard practice or at least heading that direction.

It's still a challenge for sales representatives selling multi-media products to know the annual value of a new customer to the advertiser and what the advertiser is willing to pay for that customer. The better the offer and creative, the more the advertiser is willing to invest.

Training on creating singular irresistible calls to action and great ads around them will maximize online advertising values. The reasons are obvious: long term advertisers and sold out inventory segments creates scarcity at the root of the online pricing dilemna.

Long term advertisers still need to change offers or even the color of the ad often to sustain click through rates and sales. 

11. Other products.

Banner ads are just one of a variety of digital products. Here are a few typical pricing strategies for other products:

*Reselling google AdWords goes for $250 plus a 20 to 25% market up.

*Social media set up and service, at an average at $1000 a month average, including set up and maintenance of an online blog and Facebook account.

*A new Twitter feed-fed channel for daily specials from restaurants has a planned price of about $500 a month. Since 45% of SMB’s who are newspaper clients also have a Facebook page, these services are catching on.

*Directories, while low dollar inventory at $65 a month or about $1000 a year have high profit margins overall, since, unlike social media, they require very little work to maintain and once the sites rank on Google, especially with a video, they become extremely resistant to cancellation. One company that launched its own local business directory without a partner in a Midwest city generates $400,000 mostly cash from this source of largely passive revenues.

The author, Alisa Cromer is publisher of a variety of online media, including LocalMediaInsider and  MediaExecsTech,  developed while on a fellowship with the Reynolds Journalism Institute and which has evolved into a leading marketing company for media technology start-ups. In 2017 she founded Worldstir.com, an online magazine,  to showcases perspectives from around the  world on new topic each month, translated from and to the top five languages in the world.

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