How Much Does Advertising Cost? Understanding the Value of an Advertising Impression

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I was recently asked to answer what seems like a very simple question. But it’s anything but simple. How do you set the value of an advertising impression?

What’s an impression?

I’m going to cover the basics in a very simple way to make sure we’re all on the same page. Generally you have the publisher or person who has the ad spaces and they are selling these spaces to an advertiser. In advertising the viewing of an advertisement would be considered an impression. So if one person views it, we’d call that one impression. Advertising buys are typically purchased by the CPM (cost per thousand impressions). So $50 CPM would be $50 for 1,000 impressions.

What’s the tricky part?

The confusing part comes down to “what is the value of an impression?” This is an age old question and there is often no one-size fits all answer largely because value is subjective which I will show later in this article. The end result is that most people are trying to determine the value of an impression because they are selling advertising or buying advertising. For someone looking for a sponsor or selling advertising, you can increase the value of an impression by providing a more targeted audience to an advertiser (eg, 10,000 home owners to a bank looking to offer a deal on re-financing a home loan). If you can’t get more targeted then you can try to increase the sheer volume of impressions to increase the overall advertising buy. The following are suggestions for estimating sponsorship or advertising spends. Please keep in mind I was originally asked to answer this for a fundraising event seeking business sponsorships so the answers are skewed a little towards that realm. But these approaches can work for any organization looking to monetize their impression base or for an advertiser looking to rationalize an advertising spend.

The time consuming but more accurate researched method to prove your worth.

Whatever industry you’re in, look up similar companies in your area and fill out quote forms online to get a rough idea for advertising costs using a similar form of advertising. If you’re a news site, fill out local news site forms for advertising packages to get pricing. You can just pretend to be interested in advertising, get a quote (use a fake email if you don’t want to get a ton of sales follow-up) and come away with some ranges for advertising to base your sponsorship package off of. Once you get three responses I’d say you can have a decent idea of a range to base your impressions cost on and if anyone gives you any grief you can show them quotes to prove it.

Get a ton of press buzz to build up the value of a sponsorship.

Do you have something interesting to say? Interesting things tend to get press buzz. Pitch it to TV, radio, newspapers, blogs, etc to get some additional coverage. Once you get confirmation that the media will be on hand you will exponentially increase the number of views for a sponsorship or advertising package by piggybacking whatever audience you have onto an even larger one.

Metrics for determining the value of an impression.

As mentioned above, impressions are commonly measured with a formula called CPM (cost per thousand impressions). When I was at the Tribune Company their email marketing was commonly fixed at $60 CPM. A company would pay $60 for every 1,000 emails mailed to. Now this would vary a lot depending on targeting. The more targeted, the higher the CPM, the lower the volume of emails being sent. The reason it is difficult to set a general CPM is because value to the advertiser (your sponsors) is subjective. Often times it’s very difficult to track the value of impressions and companies will rely on “reach” and “engagement” metrics. Here are examples that I am making up to illustrate this point.

The value of an impression: Bank example

Let’s say you’re looking for advertisers to sponsor your hang gliding competition that flies over a town of 1.8 million people. While looking for sponsors you find a bank that’s interested. Most people need a bank account. Let’s say the bank marketing manager knows for every 1,000 new customers they get, they’ll make $1,500 in overdraft fees a month off of them. If you have an estimated audience of 180,000 people (10% of the population) and 10% of them (18,000) see the bank’s advertisement and come in for an account and 50% of those people open an account (9,000), then the bank can stand to make an estimated $13,500 ((9,000 / 1,000) * $1500)) a month in overdraft fees. So to them, paying $5,000 for the sponsorship could be a good use of their advertising budget. This formula excludes costs of doing business because I’m not getting that technical, but you get the point.

The value of an impression: Air freight example

Let’s say an air freight company reaches out and the marketing manager is interested. She knows every new customer is worth $5,000 per month. You’ve got the same audience of 180,000 (10% of the population) but they get 18 people contacting them since less people do business with air freight companies (0.01% of your audience). 50% of these people become new customers (9 new customers) so the company adds $45,000 (9 x $5,000) in new revenue. This means they could easily see value in spending $15,000 for the sponsorship.

A simple solution: Not focusing on impression value and basing it off of your costs

Sometimes you can get away with basing your costs off your own cost of doing business. If you want to just cover your bare minimum costs and your event is going to cost $50,000 to execute you can create several advertising opportunities or spots that, when combined, total $50,000 in advertising revenue. The more ad spots, the more advertisers you will need but they can pay less. The less spots you have the higher the advertising costs. 10 advertisers, $5,000 a spot. 5 advertisers, $10,000 a spot. This leaves it up to the companies to determine the value to them, which would mean they have to have a solid understanding of conversion rates and customer value which quite honestly not a lot of companies have. The bank from the previous example might be OK with a $5,000 ad spot but not take a risk for $10,000. The air freight company may think $10,000 is reasonable and $5,000 is a steal. You still have to be reasonable about your pricing so it helps to understand similar advertising packages from your competition or similar businesses.

In closing…

All those numbers are variable depending on the individual businesses, industries and customer values so it’s difficult pleasing everyone. You should focus on making sure you’ve got a good audience size and do a little research locally to determine pricing for similar methods of advertising to backup your asking price. The value of getting press buzz behind your event is it will increase the number of eyeballs on sponsorship logos (and your company) which will justify spending money on the sponsorship. I would also do a little bit of tugging at heart strings so to speak to influence advertisers emotionally. That never hurts…

Author: Graham Onak
When not running the day-to-day activities of GainTap, Graham writes about technical optimization for websites and online marketing programs.

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