As you build your ad platform, one decision to make is how you will sell and price your direct-sold ads.
Do you charge for clicks or for impressions? Do you set these ad rates yourself, or let advertisers adjust their bids? And if you’re setting them, what prices make sense?
Your choices have real consequences: if costs are too high, advertisers won’t continue spending. But if prices are too low, you leave potential revenue on the table.
To help set reasonable (and competitive) ad prices, we outline considerations to keep in mind when determining your pricing model and ad rates.
Publishers generally offer three main pricing models for their direct-sold inventory: CPM, CPC, and CPA.
For publishers, CPM pricing is the safest and easiest way to sell. As long as you have a pulse on your monthly impression numbers, you can easily make commitments based on that data.
Cost-per-click (CPC) is a riskier model for publishers, since it introduces an unknown factor: click-through rates (CTRs). If you show an advertiser's ads and nobody clicks on them, you’ve “wasted” those impressions and make nothing.
Many large ad platforms such as Google’s and Facebook’s employ this, though, because it appeals to performance-focused advertisers.
Cost-per-action/lead (CPA or CPL) is less common, but loved by direct response advertisers. Here, advertisers pay only for a conversion event, such as a purchase or app download. This is even riskier for publishers, since you have to worry about both CTRs and conversion rates (CRs). If 100% of people click, but 0% of them convert, you make nothing.
As you look to determine how you should charge, keep the below questions in mind:
At a high-level, are your advertisers more focused on driving down-funnel results or for the brand awareness opportunity?
For branding advertisers, CPM pricing is generally more interesting because it aligns with their internal goals tied to reach metrics (# of unique people who saw the ad). Direct-response advertisers, on the other hand, often view impressions as a “vanity metric” and prefer CPC or CPA pricing.
On top of that, are your advertisers sophisticated marketers? If you’re a peer-to-peer marketplace with sponsored listings, for instance, your advertisers may not know anything about CPM or CPC, so you should just pick the model that you think is easiest to explain.
If your advertisers are using multiple ad platforms, they will judge you against them. If they are advanced marketers also buying on Facebook, Google, Criteo and so on, they may expect you to sell via CPC too.
As mentioned above, CPM is the safest for publishers because you don’t have to worry about CTRs or CRs. If you know your impressions numbers, you can accurately forecast revenue without the uncertainty of whether your users will interact with the ads.
If you are just starting your ad program, especially if it’s with beta advertisers, CPM pricing helps you monetize while you learn more about expected engagement rates. Over time, expanding to CPC or CPA enables you to expand your audience base.
As a final note here: you aren’t limited to just one pricing model. LinkedIn and others, for example, let you choose your pricing model (CPC, CPA, CPM).
Decide how you want advertisers to interface with you. There are three main paths here:
Most new ad platforms will focus on #1, especially for their beta program. #3 makes sense in order to scale, or if you’re a marketplace, where it’s relatively easy to add an opt-in option within your vendor portal.
Generally PMP and PG integrations are for late-stage ad platforms working with top-tier advertisers who would prefer buying all ad inventory through their DSP.
Another detail to contemplate is what type of commitment (or, volume guarantees) you want to make with advertisers. This goes hand in hand with the ad delivery logic you use.
This boils down to three high-level categories:
Rate card example
In regard to whether it makes sense to have auction pricing or fixed rates, some considerations are:
For example:
In this hypothetical, Ad #2 should win the auction since, while the bid is technically lower than Ad #1, you make the most revenue by displaying #2. To succeed at auction pricing, your ad decision engine needs such logic built in.
In summary, if you’re just launching your ad platform and don’t have self-serve, the easiest path is to work with beta advertisers and sell via fixed rates (whether variable or guaranteed volumes). As you scale the ad business, you can incorporate CPC auction pricing to maximize your revenue.
Keep in mind--you don’t need to price everything the same. You could have full site takeovers that are guaranteed volume at fixed rates, but then have remnant inventory that you sell via CPC auction pricing.
Let’s say you don’t have auction pricing or self-serve and are determining your fixed rates. Deciding this is tricky since you don’t want to undervalue ads or price them too high. For this reason we recommend being flexible with pricing and iterate over time.
As you ideeat your rate card, think about the below questions:
Determining your ad rates is a mixture of game theory and trial and error. If you have no idea where to start, pick a number that’s around the industry averages (see below) and work from there. Starting with lower rates is advised, as you can always increase them as you learn more, and early on, advertiser adoption is more important than profitability.
You’ll know you should increase your rates when:
These are industry benchmarks for what eCPMs advertisers are paying. These shouldn’t be prescriptive, but are directionally accurate to help understand where to start.
Based on your use case and industry, picking a number within these ranges is a good place to start.
If you’re looking at CPC pricing, you have an even tougher decision, as what you charge will need to factor in expected click-through rates. If CTRs are low, you will need to charge higher CPCs to justify the impression.
For frame of reference, below are the average CPCs advertisers pay on the major ad platforms.
How you sell your ads — and at what price points — will have a huge impact on the success of your ad business. Price too low, and you leave money on the table. Price too high, and advertisers won’t want to work with you.
The good news: it’s your ad platform. You make the rules.
You can always adapt your pricing model and price points based on advertiser feedback. We recommend working with your beta advertisers to figure out a good starting price, then making adjustments as you get more demand and roll out new features.
Kevel offers the infrastructure APIs needed to quickly build custom ad platforms for sponsored listings, internal promotions, native ads, and more - so you can drive new revenue and take back the Internet.
We are committed to the vision that every online retailer and publisher should be able to add user-first ad revenue streams and take back the Internet from Google, Amazon, and Facebook. Customers like Ticketmaster, Yelp, Strava, Mozilla, and many more have already launched successful ad platforms on Kevel.
