Ad Networks, Ad Rates

This time, in further fleshing out our list of bullet points (which are on the wiki here) we’re going to look at ad inventory, how to sell it and price it.

The bullet points we’re expounding on are:

Based on your predicted traffic, how many ad spots that aren’t sold to specific advertisers can you fill with ads from networks -- anything from a targeted ad through a subject-specific ad network to something more generic like Google Ads?
What are the ad rates likely to be?

The first issue -- figuring out how many ad spots you’ll have remaining after selling to advertisers (sometimes called “remnant inventory”) -- is pretty simple math. Let’s figure for a month, which is a common timeframe for measuring these things. How many pageviews do you expect for the month? How many ad spots of each size are there on each page? How many impressions did you sell to the advertisers? In previous posts, we described terms we’re using here, such as CPM, “impressions,” and “inventory,” and how to do the math. The numbers below are purposely low and rounded, just for demonstration purposes.

Let’s say you sold five advertisers each $100 worth of ads at a $10 CPM, so you owe each advertiser 10,000 impressions. Five advertisers at that rate is 50,000 impressions. If you expect you’ll have 100,000 pageviews in the month, and you have one ad per page, that means you’ll have an additional 50,000 impressions to offer an ad network, and make a little extra money. Multiply that number of impressions times the rate you get from them, and, voila, you have your total predicted revenue for your ad spots. Be careful, though; there are a few things to consider. First, the rate the ad network quotes you may not be the amount you actually get. Many networks will mention the high end of what they offer, and assume a nearly 100 percent fill rate, but in fact, the fill rate will almost never be close to 100 percent and they will -- if you don’t specify -- put ads at much lower rates in the spot. On the other hand, if you have a lowest rate you’ll take, or won’t take a certain type, say cost-per-click ads, your fill rate will go down, so you’ll serve fewer paying ads. You’ll want to figure your effective CPM or eCPM, basically the average rate you’ll get per 1,000 impressions. That’s a more real number.

So, for example, if you have the 50,000 impressions mentioned above, but only fill 25,000 of them at a $2 CPM, your eCPM is $1, meaning you’ll get $50 for those 50,000 impressions. So you’re predicted total ad revenue for the month from your direct sales and the network would be $500 + $50 = $550.

With an ad network, it pays to estimate on the low end. With no other benchmark, for every ad spot, you might figure an eCPM about 40 percent of the amount the network quotes you. Also, you may have to work hard to even get quoted a rate before you sign up -- you might have to call the network rep and convince them over the phone to tell you their rates. You can also ask around, do research, go to conferences, use your reportorial skills. More targeted “vertical” networks should offer higher rates than generalized “horizontal” ones. If you can offer a choice audience with content that’s relevant to the ads -- anything from tech, to health, to green issues, to young men’s fashion, and dozens more more -- and offer an audience, you should be able to get into one of the myriad networks that serves those "verticals" and get a higher rate. You might go from an eCPM of as little as $.25 to $3.00 or more. In the best cases, a large ad spot to a high-end network can get, perhaps, $8 or $10, pushing your eCPM higher. A good network will also let you set up a cascading system, so you can tell the ad server an algorithm such as, “if there is no paid ad under the specifications I set then hand off to this other ad server or ad network.” You should also be able to feed in some house ads touting whatever you think appropriate (within their guidelines of decency, privacy and the like) to serve in such an instance. We’ve previously discussed some other cautionary notes for using ad networks.

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We’ll be posting a consolidation of all the bullet point explications on the wiki, incorporating your feedback and comments, and inviting a few from the community to be co-editors, but for now if you want to read back, you can go to the business assessment group postings page, or go to our most recent post on finding local ad partners and clicking through from there.