Calculating Advertising Prices

Hi there,  I've been asked this question before:

Derek

What was YOUR offer? Just so we have a rough figure to make to them so it doesn't seem absurd.  

Well, often newbies like me are in dilemma about setting the correct price for their advertisements. Sometimes, we fear that quoting a high price can result in loss of advertising deal, while quoting less will be like giving our real estate in pennies. How to overcome this situation and how to correctly calculate the prices for our ad inventory? Here are some basic guidelines that I got from several source to calculate ad prices..

Image Vs Text Ads - Normally image ads are always priced high than text ads. The CTR (click-through ratio) of image ads is much higher than text ads and hence this pricing difference..

Size Does Matter - Larger the size of the banner, higher the price is.. If your 125x125 image banner is priced at RM30/month, a 250x250 banner should be priced at 4 x 30 = RM120/month..

Placement - If the advertisement appears above the fold (area visible without the need of scrolling), it is priced much higher than those ads that appear below the fold.. If an ad is going to appear in the footer, it's price will be considerably low than that placed in the header of your blog..

Pricing Model - There are two popular pricing models for advertisements at least from what I know.. The CPM (cost per thousand impressions) model and CPA (cost per action) model. The CPM model is the preferred way to calculate ad prices and is widely accepted model throughout blogosphere.. In this model, a fixed amount is paid for every 1000 page views, simple. But how would you calculate the right price for a particular ad in this model? Here are some ways to do it..

The best way to get the correct value of an ad is to check public ad inventories and see their CPM rate. Login to your Adsense account and go to advanced reports to view the CPM rate for a particular ad.. Take at least month long data to get the clear picture, though a long-range data will give much more accurate rate. Let's suppose you get a CPM rate of RM1.20 from the report. Now according to your assessment of the purchasing power of the advertiser you can increase or decrease this rate. A low budget advertiser can be offered a rate of RM80.00 or RM0.50, while a big web site can be asked for a CPM rate of RM1.50..

Let's assume that the deal is finalized with a rate of RM1.50 CPM.. How the monthly rate will be calculated? Suppose your blog generates 5000 page views per day. This amounts to 30 x 5000 = 150000 page views per month. So, at this rate the price of the ad will be (150000 / 1000) * 1.50 = RM225/month..


But if you still unsure about this, you might want to let the advertisers to quote their price first then, from there on you can start doing the negotiations until the deal is finalize.. 


Thanks for reading..