Online advertising rates are set through a combination of ad size, ad location, ad performance and market demand.
Optimizing this key ad sales tactic results in higher revenue, increased advertiser acquisition and increased advertiser retention.
These results in turn influence the price on the online rate card.
Ad Size and Dimensions
The size of the ad is a major factor in Website advertising rates because of the amount of space each one takes up on a page.
Just as broadcast sells time and print sells space, online sells pixels.
Here are the total pixels for the three Internet Advertising Bureau sizes that dominate the universal ad package for online display advertising:
- 728 x 90 – 65,520 pixels
- 300 x 250 – 75,000 pixels or 14 percent larger than the 728
- 160 x 600 – 96,000 pixels or 28 percent larger than the 300 and 47 percent larger than the 728
Based strictly on space alone, the 160 x 600 skyscraper should command the highest premium on the rate card, followed by the 300 x 250 and then the 728 x 90.
Dimensions via the ratio of height to width matter because they impact the creative. As a result, the 300 x 250 often gets the best rate and highest demand because it works better for creative, despite the larger size of the 160 x 600.
Ads located above the scroll perform best. Whether they also work best on the left, in the center or on the right depends in part on what else the page contains.
However, a leaderboard (728 x 90) does not perform well above the site logo. It usually performs better to the right of the logo and even better below it.
Although the skyscraper is the largest size, what is known as the pillow or rectangle — the 300 x 250 — often is seen as having a strong clickthrough rate and location when it is placed within the body of an article and the article wraps around it.
The concept of viewability — ad positions that are viewable at the top of the page without scrolling — has become more important in online advertising.
Size, location and the quality of the ad contribue to ad performance — in other words, the clicks. Performance increases with targeting as well. An ad about job openings for nurses will perform well in an employment section for nurses.
But that same ad is likely to perform less well if it runs in other employment sections.
Therefore, the ad might command a premium on price in the most targeted section and a discount in other sections of a site.
Response should not depend on clicks alone. An ad with a phone number in it can result in a response via a phone call rather than a click. In-store traffic because of a coupon ad, an ad about a sale or simple brand awareness is an invaluable form of indirect response.
The perception of better performance and location leads to higher market demand. For many sites, that higher demands results in a premium on the online ad rate.
A publisher will find that setting a rate card at a level low enough to sell out the bulk of the inventory will increase retention for advertisers and drive up rates in the long run.
Content sites will find that a careful balancing of the above four factors will drive higher sellout rates and advertising market share.
A client might pay a fix rated for every 1,000 impressions, but that same client may or may not have a guarantee on the number of impressions.
For that reason, guaranteed impressions have greater value than non-guaranteed.
It may seem obvious that clients are guaranteed them, but whether or not to do so creates an opportunity in sales.
The simplest and most well-known example of non-guaranteed impressions is the use of remnant advertising networks such as Google AdSense, which allows a site to generate revenue from unsold inventory.
A good sales team should try to sell some of that inventory on their own as non-guaranteed impressions at a rate somewhere between what they get from national remnant networks and what they get from guaranteed impressions on the rate card.
The client then pays a variable amount each month based on the number of impressions delivered.
Unit CPM Rates
CPM is cost per thousand impressions. A review of 13 online newspaper rate cards showed the following average run-of-site (ROS), open-contract rates for the three major banner positions:
- 728 x 90: $14.88
- 300 x 250: $16.12
- 160 x 600: $15.25
Most of the 13 newspapers charged a similar rate for each position. Most major media sites charge at least a $10 CPM and some go as high as $25-30.
A recent rate card for AdWeek (2013) shows run of site rates of $65 and targeted rates for the home page and sections at $100.
Targeted advertising commands a higher rate. Discounts are often available for high-volume and long-term contracts. Sites typically with the highest rates also have the steepest discounts and vice versa.
But it’s worth noting that CPM and CPC rates are declining over time as the total number of Web sites and pages is increasing faster than the amount of online advertising.
One answer to that problem: Drive up ad inventory volume by increasing site audience, unique visitors, visits and page views. Take market share from competitors.
Page CPM Rates
The average CPM rate for a page is an effective tool for an online business to measure how efficiently a Web site is performing for both revenue and audience.
Anyone who uses Google AdSense to generate extra site revenue will recognize this metric in their account reports.
To arrive at page CPM, divide total site revenue by total site page views. Then multiply the result by 1,000. The formula is simple:
Total site revenue / total site page views * 1,000 = Page CPM
A few more realistic examples will make the usefulness clear.
- Example A — Assume a medium-sized site has $5,000 in revenue and 500,000 page views in a month. The average page CPM for the site is $10 using the formula of $5,000 / 500,000 * 1,000.
- Example B — Assume a small site has $1,000 in revenue and 50,000 page views a month. The average page CPM is $20.
What is a good page CPM?
I did two studies for clients that revealed average page CPMs of about $12 for a group of small, underdeveloped sites and CPMs ranging from $30 to $40 for another group of large and advanced sites that also had multiple revenue-generating products such as classifieds, directories, mobile and video.
A $12 CPM is too low for the underdeveloped sites to make a profit, while the larger sites have CPMs more in line with their true potential.
Some major national sites I analyzed have a page CPM of nearly $100, but they also have high marketing and production costs and targeting of high-value audiences.
A page CPM can be both too low and too high. A CPM that is too high can mean that a site is running the risk of selling out all available ad inventory and must focus more attention on boosting site traffic. It has pushed out low-CPM inventory. Good news can be a mixed blessing.
Although there is no perfect number, page CPM is a useful metric in striking a balance between revenue and audience performance.
If average CPMs are declining, one way to make up the difference is by increasing volume of impressions, usually by taking audience market share away from other sites in an environment where online audience growth rates are slowing.
An advertiser who uses Google AdWords, Facebook, Bing or other major advertising sites will instead likely pay based on a cost per click or CPC.
A CPC rate card is fair to an advertiser based strictly on response rates, but it is unfair to the publisher if a great deal of inventory is used for a poor ad that generates no response.
As a result, a CPC campaign can have a wildly unpredictable cost and benefit.
It becomes even more unpredictable based on the category — auto, real estate and employment have a high CPC for advertisers because of intense competition for inventory and because a $4 CPC for real estate could result in a $20,000 commission for a Realtor and broker.
So a CPM campaign should be judged based on impressions with an emphasis on branding and response. A CPC campaign should be judged based on conversion rates.
Impact of CPC on CPM
Some studies are showing that cost per click advertising is driving down CPMs.
In fact, some buyers of search engine advertising are finding that when CPC is calculated on a CPM basis, the rate is closer to $2 to $3.
CPC delivers superior performance at lower rates if done right. As a result, the advertiser benefits, but the publisher often does not.