How to Sell Ads Online > Let the Market Determine the Price via an Auction (6/7)
January 13, 2010 – 1:46 pm How to Sell Ads Online > Let the Market Determine the Price via an Auction (6/7)
This is the sixth part of the How to Sell Ads Online series.
One of the first questions that come to your mind of when you want to sell online advertising is – how much do I sell it?
$10 CPM?, $1000 per month? $1 per click? Which is best?
How much to sell it and how to sell it have become a paradox.
You are torn between discovering how to price it correctly without scaring away advertisers and pricing it too low and leaving too much money on the table.
Here are three options.
1. Copying others
One option is to do a quick scan of your sites related to yours and figure out how much they are selling their ads.
The problem is they are probably in the same situation as you. It doesn't matter how large they are. Even the experts haven't gotten pricing down to a T. Most people won't even publish their prices. So you are back to square one.
2. Manual negotiation
Another option is to stick a form on your site and ask potential advertisers to contact you. Bad.
It's funny how Google doesn't stick a form on AdWords and require everyone to call or fill a form iin order to negotiate the price. Sure they don't publish a price for each ad placement but they have a much better approach. Well, thank goodness they do.
3. Run an auction (recommended)
Google just lets the market determine the price – through an auction. It turns out that this is pretty much how majority of prices are set. It is simple – Supply and Demand – Economics 101.
Running an auction is a rapid way to get feedback on how much the market is prepared to pay.
This is where using the right technology matters a great deal. Google built theirs. Facebook built theirs. Heck, even Plenty of Fish has just built theirs.
But wait, before you run off and start coding away or put a job ad on Rent a Coder for someone to duplicate systems like Trafficspaces, I’ll urge you to search around for an existing ad manager that can allow advertisers to bid for your inventory.
The auction model should be simple. Advertisers have a budget which is usually fixed but the price they pay for each click or each impression can vary. Your ad manager should allow multiple advertisers to key in their preferences and then it should show the relevant ads with the highest bids automatically.
That way, everybody wins.
Action Points
- Find an ad manager that lets advertisers bid in a real time auction. If you don’t find one, only then should you build one.
Effect
- Increase revenues through optimized pricing. You’ll also get a better idea of how much demand there is for your inventory at any given price or as the economists call it, the price elasticity of demand.
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