Digital media pricing models explained

digital media pricing modelsAs digital media buyers and sellers you are probably well versed in a few digital pricing models you regularly use, but are you really familiar with all of them? Why should you even care? You don’t really have the time for this, but since you’re here now, I’ll do you the service of expanding your horizons just in case one of these generates an “a-ha!” from you.

Online pricing models

Digital media pricing models mimic offline pricing models to a large extent as you will see in my next post. It is not rare for an advertiser or agency to use more than one pricing model within a same campaign, and with a same publisher or supplier, all depending on their creative used and objectives.

Flat fee: Although rare online, it is mostly used by smaller publishers who feel selling on CPM or CPC wouldn’t allow them to generate any revenues, or with any other publisher selling a first time sponsorship for which they’re not certain how much traffic will be generated. The thing with flat fee pricing online is there’s always one party that feels they’re being “had” or not getting their true money’s worth. It is also this type of pricing that’s used by online directories and classifieds sites (3rd largest ad spend category with 18% of total).

CPM: Cost per thousand impressions is the preferred pricing model of publishers and sales teams as they know what to expect in terms of billing. They sold X thousand impressions and now they need to ensure delivery in order to invoice the client. This pricing model is predominantly used for branding objective campaigns – those where the advertiser needs to be seen and get their message across. The problem with CPM is that impressions can be gamed or trafficked (fraud). That means you might be paying for impressions that were never seen by anyone.

CPC: Cost per click is by far the predominant pricing model used online. For one, it was the only pricing model on Google for a long time (not anymore) and it is widely used for display ads. Here the advertiser obviously pays per each individual click. While there are never any guarantees in obtaining a set numbers of clicks, publishers have a good idea what they can generate and you won’t be “hoping for the best”. The problem with paying for clicks, on one hand, is that they can be fraudulently generated, and on the other hand is that they are not indicative of conversions.

CPA: Cost per action is the predominant pricing model using the term “CPA” which most people usually think of as cost per acquisition. The later, cost per acquisition is predominantly used as a reporting metric. The problem with this pricing model is first defining what the action will be and second how that action will be measured for billing purposes. The action can be any number of things such as registrations, downloads, conversions and when used often enough they become their own specific pricing model as you will see across the next few.

CPAcquisition: Cost per acquisition can be used with some of the very large ad networks. Networks require very large inventories in order for a CPA (acquisition) sale to be worthwhile. Here the advertiser pays a sum or percentage whenever a sale or transaction is completed. Oftentimes, paying this way gives the advertising much control over the pricing mechanism and values; however he must relinquish much control over delivery and ad targeting.

CPL: Cost per lead is used in the United States but not much in Canada. While it is often used as a reporting metric (like cost per acquisition) an advertiser can in fact pay per lead. This takes the form of either collecting publisher newsletter signups interested in learning something about a particular partner (the advertiser) or in actually paying a publisher when a visitor to the advertiser’s website does an action which indicates a lead (info request or such). This, like all other cost per action models, requires the publisher and advertiser share much information and trust that information for proper billing. 

CPE: Cost per engagement is used by many advertisers now and again. Some publisher and ad networks offer it while one in particular (Say Media) uses it as it’s base pricing model. What’s an engagement? As it was for “actions”, it is whatever the publisher and advertiser agree that it is. Here are a few examples: expansions of the ad (for expandable ads), video plays, video percentage watched (x$ / 25% of video watched for example), number of content elements viewed / clicked on within an expandable ad, time spent with an ad (can be x$ per second, or x$/sec after x seconds…). If a particular engagement action makes sens to you and you can track it, it can count as the basis of your pricing model.

CPV / CPCV: Cost per completed view is a pricing model introduced by YouTube and used by a few other publishers, but not universally. Here the advertiser has the choice to pay only if an ad has been viewed 100% of the time. Depending on whether the ad is forced (i.e. no possible skip), or if it can be skipped, will affect greatly the value of the ad pricing-wise.

CPP: Cost per point is now also possible online as we’ve begun measuring digital GRPs through comScore in Canada and the US as well as Nielsen in the US. Predominantly used when executing a video ad campaign, it can be used for any other format really. As it works offline, here the advertiser buys GRPs of a particular demographic set in a specific geographic area. In Canada the difficulty in execution is that those available geographic regions are not as specific (market-wise) as they are in the US – we are limited to a few provinces (British-Columbia, Ontario and Quebec) and two regions (Prairies and Atlantic).

Hopefully this post help clarify some of the pricing models you’ve heard about but weren’t quite certain what they meant or how they worked.

Please do not hesitate to contact me if anything isn’t clear, either in the comment section below or in the contact section of my site.

In an upcoming post I will address more advanced pricing models such as hybrid, eCPM and dCPM. Another post will focus on off-line ad pricing models

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