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.

Test­ing

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  

  1. Some ven­dors offer trans­par­ent pric­ing mod­els and oth­ers are a black box.
  2. 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.
  3. With no trans­parency, there is an inher­ent con­flict of inter­est between the ven­dor and the advertiser.
  4. With trans­parency, adver­tis­ers can feel con­fi­dent that they are pay­ing a fair fee to their dis­play vendor.
  5. 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.

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