In Part I of Why Bloggers Need To Understand How Ad Networks Make Money, I explained how the 50/50 split that most bloggers get from big ad networks like a BlogHer or Glam is not really 50/50, and how the ad network actually makes more money than you.
In Part II, let me explain to you a little more about how the ad inventory pipeline from your ad network works, and how the actual overall CPM you are making may actually be lower than you think.
Generalizing but it can help you ask better questions
Most of the info I have provided on how ad networks make money is very broad and generalized, so to be sure, please have a detailed conversation with your ad network. As well, because the market is so volatile and things are changing almost daily, the ad networks are getting really creative and changing their own offerings. So like I said, don't assume that all the ad networks operate the same.
I'm giving you some basics so that you can have a better understanding of how the ad networks can work so you can ask better questions. Again, there are many Pros and Cons to using ad networks, and you can make better decisions if you know better what you're dealing with.
So, let's learn more about the ad pipeline...
This thing called the ad pipeline: CPMs, PSAs, remnants, and house
For Part II, I will use again the made up companies from Part I for an example where Ad Media is the ad network, Cheese Farms is an advertiser and client of Ad Media, and there is you a food blogger. I'll add a couple of other advertisers as well Tater Fixings, and Freshly Made.
Let's say that Ad Media has 100 blogs in their network of food bloggers (aka food publishers) and that within that 100 blogger network they can fill 100 million ad impressions at 100% capacity for one month. Let's use June as an example. That means on one extreme end, Ad Media can sell to one client advertiser the entire 100 million ad impressions for the month of June, or Ad Media can sell to as many advertiser clients as they can get which is most often what they do because most companies will not buy 100% of the fill, but it can happen.
So, let's say for June, Cheese Farms, Tater Fixings, and Freshly Made along with 10 other advertisers buy up 60% of that 100 million ad impression inventory. That leaves 40% of the ad inventory empty for June. So what does Ad Media do? Well, Ad Media still ideally wants to have 100% fill so they have several alternative choices which includes filling up that 40% "back fill" as they call it with things like remnant inventory which are basically those cheap looking punching money and Acai Berry as seen on "Oprah" ads, public service announcements (PSAs), or house ads which are Ad Media ads promoting themselves.
Back fill stuff is always the cheapo ads. Public service announcements (PSAs) are always $0 because it's do gooding stuff. Remnant inventory is usually priced in what I call the sub-GeorgeWash CPMs (under a Quarter, 25 cents). And actually, in most cases it's more like sub-FDR (Dime, 10 cents) which is what you typically get in Google AdSense. House ads can vary depending on ad network. Some are very generous offering like $4/CPM and above, and some not as much or at all.
Important questions to ask a potential new ad network
Therefore, one very good question to ask a potential new ad network is:
- "How much are your ad inventories typically filled with the high paying CPMs?"
With ad networks that have multiple ad categories like BlogHer Ads ask how much your particular ad category is filled. In this example, you're a food bloggger, so ask how much the food category ad fill is typically filled. One reason I left BlogHer Ads is because the Fitness and Healthy Living categories I was in were almost practically empty unlike the parenting categories that had lots of inventory because BlogHer sells more parenting oriented ads overall as that is the area BlogHer Ads got their start in.
BlogHer Ads also sold "Overall Network" ads which were ads targeted to a generic female consumer and filled into all BlogHer Ads blogs. This is fine, but many of those overall network ads were brands like Pringles and M&Ms which conflicted with my particular healthy living blog message. As a blogger, I ideally want my ads to match my blog message as I care very much about brand consistency. Some of you may not care as much as me, and that's fine too.
When the ad network gives you an answer to their inventory fill, ask to reiterate:
- "So that means your back fill is xyz%? How much CPMs do you typically pay with your back fills?"
The sales guy/gal will most often give you a vague answer, so prod a bit more and say, "Just for fun, throw me some numbers." And importantly ask:
- "Where do you get your remnant inventory from?" Many get it from Google which means you are getting a percentage of something that you could make 100% of on your own.
How to calculate your overall CPM
Now, when you look at your ad reports, chose a year-to-date view, so you can see the whole picture for the year starting in January. Your report will be filled from high paying CPM campaigns to the freebie PSAs.
An important number for you to know is what your overall CPM is with your ad network. This is the average CPM number you're making overall, and is important because it can also give you another peek into just how much back fill your ad network is carrying because those low CPM numbers will bring down the high paying CPM numbers to arrive at the average CPM. It's like back in school when grading on a curve, the more D's and F's there are in class, the more it will bring down the higher A's and B's to give a lower average grade.
To calculate this overall CPM number, take the total number of impressions and divide by 1,000. Take that number and divide into your total Net revenue number to date, and that will give you your overall CPM number. For example:
You have 1,486,271 impressions total
Divide by 1,000 and you get 1486
Your Net Revenue Total so far is $2,081
Divide $2,081 by 1486 and you get $1.40/CPM
Is it worth it?
So, the value that Ad Media is generating for you for your content is averaging $1.40/CPM overall. So again, like the school garding curve, you may have had some high paying CPMs like in the $10-$15 range but the higher % of sub-GeorgeWash and sub-FDR back fill ads brought your overall CPM way down to $1.40. Are you good with that? For me, my initial reaction is, oh hell no! My content is worth so much more.
However, it may be worth it because I don't want to deal with the business and advertising side. I'd rather Ad Media handle it for me, so this is the price I must accept to have them take care of my advertising.
Now, that overall $1.40/CPM in most cases is not indicative of a 100% high paying CPM fill. Ideally, Ad Media would want closer to 100% fills because it's higher paying CPMs for themselves too. What is dragging the number down is the high % of the cheapo sub-GeorgeWash and sub-FDR back fill ads.
You can imagine correctly in that the sales people at Ad Media are being constantly pressured to close more high paying CPM deals.
Why bloggers start dropping ad networks
As your blog traffic and influence grows and you get into the millions of impressions per month, odds are that you won't settle for that $1.40/CPM anymore. The big blogs ideally start selling their ads on their own because they can charge higher CPMs and do not have to split the revenue with a third party.
Even as a small blogger, you can sell your own ads direct to an advertiser if you are willing to deal with the ad sales management part. There are also companies like BlogAds which will give you a sales platform to sell your own ads, but they will take care of the payment side from client to you for a % of the sales usually like 10-20% of the gross CPM.
Me personally, I am looking at selling ads directly on my own in 2009. I'm still open to the ad networks, as I love the convenience they provide, but as part of my NY's resolution to be paid what I am worth financially, I will no longer settle for the low CPMs any more because my brand is a strong one, and my content is very high quality. I'm also a proven blogger with influence with 3 years experience.
Was this info help? Again, this is a general idea of how the ad networks make money, and as I stated above, it is important to ask as many questions as possible about how potential ad networks you're looking at working with operate. Things are always changing. I'm hearing of some ad management platforms that are charging zero to bloggers. That's right commission free.
Those who've been using ad networks, what's been your experience?