As a blogger who wants to make a living from your blogs, it is important to understand how ad networks make money because you too are a business owner, and depending on what your financial and growth goals are, the ad network option may or may not be a viable one for you when you start to see how much (or little) revenue you generate using ad networks for an income source.
For me, I am really reconsidering using ad networks at all or becoming far more selective which I'll explain more later. There are Pros and Cons to using ad networks.
Slap n' Go
The monetization option that is most appealing to many bloggers is advertising via an ad network like a BlogHer Ads, Federated Media, or Six Apart Media.Google AdSense is an ad network too but the quality of the ads and the CPM pay outs are better on the bigger ad networks. When working with an ad network, all you as a blogger have to do is slap code onto your blog, and that's it. You don't have to cold call advertisers, deal with invoices, manage any ad management software, or hunt for new advertisers. The ad network does it all for you which is nice.
You blogger can go along on your merry way and do what you love most which is creating content and getting more traffic, and let someone else handle all the money making side of your business. You can just log in to your account and see how much money you make each day, and wait for the check to come in the mail or in direct deposit. Sounds really wonderful and it is in so many ways.
Logistically, the ad network option is great for lifestyle bloggers because many of us are creatives and we most love to just create, and we hate or really dislike the business side of our blog but we know we gotta do it. We don't mind sharing the wealth to have someone else take care of the business stuff. But, how much are you willing to pay for that convenience?
You're not really getting 50/50
So, this in a nutshell is how the ad networks make money. For this example, let's make up a scenario where Cheese Farms is the client, Ad Media is the ad network, and you are a food blogger aka the publisher.
First, Ad Media determines a CPM, a dollar amount for every 1,000 impressions you blogger deliver. Cheese Farms will pay this CPM for their Monterey Jack campaign across Ad Media's food publisher network which you are a part of.
Let's say Ad Media charges $10 CPM to Cheese Farms for this Monterey Jack campaign. How Ad Media comes up with that CPM number is a science to them and is influenced on what they think they can get across their food network. What matters is that you food blogger have no say in determining that CPM number. It is what it is. Later on, as you get bigger, you will start to care about the CPM number and I'll explain more why later in Part II. For now, Ad Media is in control of the CPM determination.
Now, the $10 CPM is a gross number, and not a net number. The revenue split you agreed to in your contract with Ad Media is typically going to be something like 50/50, but it's 50/50 of a net number, not a gross number like the $10/CPM that Cheese Farms is paying. When you log into your ad reports the CPM number you're seeing is most likely the net number, not the gross. Your ad network may or may not share the gross CPMs. You'll have to ask them.
The net number could be anywhere in a typical range from 10-30% off the gross number. So, let's say Ad Media takes 15% off the $10 gross number which they use to pay for operations things like sales people commissions, and means to run their business. So, that brings the net CPM number to now $8.50/CPM = $10 (gross) x .15 (the 15% operations cut).
So, you blogger, are getting 50/50 of $8.50 not $10. Overall, your share is $4.25/CPM and Ad Media actually gets $4.25/CPM plus the $1.50/CPM for the operations cost which comes to $5.75/CPM. The ad network gets two cuts in essence, first in the gross, and second in the net. So, you really are getting a net of a net. Follow?
$10/CPM Cheese Farms paid (this is the gross)
- $1.50/CPM To Ad Media for operations cost
----------------------------
$8.50 Net CPM
Split 50/50 between you blogger and Ad Media
$4.25 To you blogger
$4.25 To Ad Media
At the end of the day, Ad Media gets $5.75/CPM ($1.50 + $4.25) and you get $4.25/CPM. Which is really a 58/42 split.
But, that's not the end of the story. Tomorrow, I'll explain how your overall CPM you make with an ad network can be way smaller than you actually think.
