Is a transparent pricing model from a display advertising vendor in the best interest of the advertiser or is a black box approach better? Can display vendors who show their fees and media costs provide the best combination of performance plus transparency? I believe it’s yes that transparent pricing is in the best interest of the advertiser.
Not All Display Vendors Have Transparent Fees
Some display vendors provide transparent pricing models. Other vendors have a black box approach. They roll up all the costs and charge a flat CPM (cost per thousand) or CPC (cost per click) rate so the advertiser has no idea what the actual margin is and if they are paying a fair price. For nontransparent vendors, markups and profit margins can vary. We can see from the filings for display vendors that have gone public that mark ups on media cost can easily be in excess of 50 percent, some much higher. I saw one test where a Facebook Ad Exchange (FBX) retargeter was charging the client a $1.50 CPM for FBX ad inventory. Adobe buys FBX ad inventory for about a $.50 CPM, meaning that the vendor markup was as high as 200 percent.
Costs Are a Key ROI Variable
In The State of Programmatic Media research conducted by AdExchanger Research, marketers indicated that improved ROI is one of the most critical benefits of buying media programmatically. Costs are a key variable impacting ROI. One area of concern with nontransparent display vendors is that their objectives do not align with those of the advertiser. An advertiser strives to reduce their costs to improve their ROI, while a display vendor may have a goal to increase profit margin and thus increase advertiser costs. A display advertiser can buy low-cost media that may or may not perform well for the advertiser to increase their margin and the advertiser would not know it.
A transparent pricing model like percent of media spend aligns advertisers’ and display vendors’ interests, and there is no conflict of interest. Both have the objective to drive the best performance for the advertiser at the lowest cost per conversion. With transparency, advertisers can see what their actual media costs are for each of the ad exchanges. Vendors like Adobe Media Optimizer for Display buy ad inventory from top ad exchanges on behalf of advertisers while offering transparent pricing so advertisers can
- know they are getting a consistent and fair price for their display campaigns,
- feel confident that the campaigns are optimized to best meet their performance and ROI objectives, and
- find it easier to manage their marketing ROI and cost per conversion goals.
Transparency is in the interest of the display advertiser for a number of reasons, and advertisers should probably demand transparency from display vendors.
It’s important to have full visibility into how real-time bidded media costs for each ad exchange is impacting performance because a vendor may be buying from multiple ad exchanges (like the Google Doubleclick Ad Exchange and FBX). Advertisers can then verify through detailed performance reports at the ad exchange level that a vendor is optimizing their campaign and allocating budgets to best meet their objectives, and thus have more control over costs.
Display vendors without transparent models can claim their optimizations are better, justifying high margins. You should regularly test your vendors against one another to see which are consistently meeting your ROI goals. How should you test?
- Start with a three-month test for each vendor.
- Identify a clear performance objective (cost per action, conversion, sale, registration, etc.).
- Monitor your performance during the test.
Once you select a vendor, continue to monitor and test performance on an ongoing basis. A nontransparent vendor may change their markup and media sources over time, and you will not know about it, making it harder to manage ROI and goals.
Five Key Takeaways
- Some vendors offer transparent pricing models and others are a black box.
- A key variable influencing ROI is cost of media and vendor fees. A lack of control and visibility into these costs can negatively impact ROI, but advertisers need visibility to make the right decision on vendors and budget allocations.
- With no transparency, there is an inherent conflict of interest between the vendor and the advertiser.
- With transparency, advertisers can feel confident that they are paying a fair fee to their display vendor.
- Transparent models better align advertiser and vendor interests, avoiding conflicts of interest, let advertisers better manage marketing ROI objectives.
When both advertiser and display vendor have the same goals, the advertiser can get the best performance and scale it. Keeping things open, honest, predictable, transparent, and in full view can help advertisers to better meet and exceed their performance goals as compared to being kept in the dark with a black box approach.