AdTech pricing is a bit of a mystery.
Every AdTech company has their advantages. Each of them price their services according to their advantages. It is based on competition, network speed, and how the displayed site sees the value.
The advertising cycle also has many players. From the creative agency to the demand side platform and supply side platform, everyone is contributing to the price.
To understand the current state of AdTech pricing, we need to understand the industry.
The industry helps determine the price. Both from the market competition to the effectiveness of the advertising platform itself. Factors are the RTB process, the speed of the network, and the location of ad servers.
We are going to attempt to shed some light on the AdTech industries pricing structure. We will look at current pricing trends and match that with advertising performance. Then, we want to see how you apply that knowledge to Marketers budgeting strategy.
The Current State of AdTech Pricing
Understanding digital advertising pricing can be a bit confusing for beginners. As is knowing whether to spend your advertising dollars on cost per impressions or cost per clicks.
It used to be cost per click was a better value in advertising. The reason is bot traffic to websites was high. As filtering technology improves, impressions are beginning to be a good buying option. That is why knowing which is the better strategy is becoming more difficult.
Even more important is understanding AdTech pricing for your own demand side platform. For 2015 and 2016, we did some research to find the trends in advertising pricing for cost per impression (CPM) and cost per click (CPC).
In 2015, the average CPM was $3.60 per 1000 impressions. The pricing is divided into three major categories. Those being display ads, email ads, and video ads. The individual pricing for each is:
- Display Ads: $2.80
- Email Ads: $5.00
- Video Ads: $3.00
In 2016, the average CPC was $0.38. For the CPC averages, here are the categories by industry. The industries are: advocacy, auto, B2B, consumer services, data and personals, eCommerce, education, employment services, finance and insurance, health and medical, home goods, industrial services, legal, real estate, technology, and travel and hospitality. The image below displays the average CPC in detail.
Programmatic bidding, or real-time bidding (RTB), determines a lot of AdTech pricing. It makes sense for us to understand demand side platform pricing.
Demand Side Platform AdTech Pricing
The demand side platform (DSP) controls programmatic bidding in the advertising process. Prices are set with your DSP based placement of the advertising bid. Speed is important, and network latency can affect the bid pricing.
DSP network performance is an important consideration when looking at who to work with. Cynapsis GmbH just worked with Datapath.io to improve network latency over 40% for their event driven DSP.
Pricing for a DSP is about the margin they take on the bidding prices. Pricing, then, depends on the speed of the exchange and the margin on the advertising bid.
The industry average for DSP margin is 40%.
The margin and network latency are a factor in DSP pricing. But so is the performance of their advertising campaigns. An AdTech company with better targeting and retargeting capabilities can provide a better return. Even if the initial AdTech pricing is higher.
The next item to consider in AdTech pricing is the advertising performance.
The Current State of Advertising Performance
The performance of advertising campaigns can affect advertising pricing. As we discussed with DSP pricing, network latency affects the performance. The AdTech Ad Server location can also affect performance. These performance factors affect the speed of the advertisements. The speed will then effect the advertising campaign performance.
Current advertising campaign click-through rates are low. As more people use ad blockers, prevent popups, and clear their cookies, advertising becomes more difficult. Also, fewer people are open to advertising.
Saying that, the average click-through rate for all advertising types is 0.17%.
Although click through rates are low, better targeting and native advertising are helping rates go up. That does not mean advertising click through rates will hit 1%. Both the creative and the speed your advertisement will influence your conversion rate.
Now, we want to take a look at how Marketers are planning their advertising budgets.
How Marketers Budget
A classic approach to advertising budgeting is to determine advertising based on sales.
For $30,000,000 in sales, you can have an advertising budget of 5% of sales. This comes to a $1,500,000 advertising budget. This is how many Marketers are planning their budgets.
For AdTech budgets, about 48% of the marketing budget is for on advertising. More of this is for digital advertising, which explains the growth in the AdTech market.
How marketers budget will let you know where to fit the AdTech conversation. Also, with the increase in AdTech spending, Marketers are valuing AdTech much higher.
AdTech pricing is not easy to determine and it’s not the most transparent. Understanding trends and current AdTech standards, we have an idea how to plan. Performance is key to the effectiveness of any advertising campaign.
This comes from great copywriting to a great AdTech technology stack. Better performance helps drive a better value proposition.
To learn more about AdTech performance, you can download the AdTech Network Performance Whitepaper.