Trends Report: When Do I Get Paid?: The Metric of Pay Day
by Sam Harrelson
Despite the
growth of the online advertising industry over the last year
and a return to profitability for many companies, the main
question that arises during IO negotiations or while
pounding out a deal is “When Do I Get Paid?”. It’s a simple
question, but freighted with an incredible amount of
importance and weight. Although our marketing campaigns
might seem here-today-gone-tomorrow in some cases, the money
behind them does not. Money is what fuels the industry and
the deals made. It is the grease that keeps the factory
churning along producing happy agencies, brokers,
advertisers and publishers. However, what is the best way
to get the money where it needs to go in order for deals to
take place? Is there one model that works better for others
for supplying the fuel line of cash to a publisher in order
to make a campaign successful? Some would say yes, and the
secret is in the CPM sauce. Others would argue for the CPA
fuel injector that demands performance for profitability.
Whatever your taste, payments and payment terms are an
ever-evolving part of our Darwinian industry that continues
to define the winners and those who just eek by in the
business.
If you are
an advertiser looking to do media buying, you’ve no doubt
been asked for a pre-pay or pitched on the CPM model by a
publisher. There are a few solid CPA publishers left,
also. Pre-pay requests are understandable. In a
marketplace where uncertainty still has a strong footing and
shops around for unsuspecting victims and companies are
“here today, gone tomorrow” it is easy to understand why
some publishers feel the need to demand payment before a
campaign is set up and run on their inventory. However,
another consideration publishers must make is the cost
associated with collections. Collections can take a large
portion of a company’s time and person power to effectively
carry out. For many publishers in our sector, the ability
to staff and exert enough energy into collections can become
overwhelming, especially for medium to smaller sized
publishers. The natural market force would drive such
publishers to a pre-pay or CPM platform in order to minimize
costs (both in time and money) associated with collections.
However,
the popularity and success of Google offers another option
that a small number of publishers are beginning to adopt.
In the interest of reducing costs and utilizing automation
for optimization, Google uses a system of pre-pay based on
credit cards. In effect, advertisers searching for CPA
inventory are happy because they are not being charged
“up-front” and publishers are happy because their
collections system is easier to set-up and process. Of
course there are variables that can lead to fraud in such a
system, nevertheless Google has shown that the system can
work in a widespread fashion that is popular with publishers
and advertisers, no matter what their particular CPA/CPM/CPC
affiliation.
The key to
the entire issue is the ability of market forces to
determine key industry metrics such as payout structures.
Online marketing and direct response is an exciting field to
participate in because of its close-to-pure capitalism. As
a result, the best relationships are those which fully
compensate for the market forces involved and allow both
publisher and advertiser (or broker and agency) to find the
median point on the curve that maximizes revenue on the
back-end for both parties. Even with the inverse pricing
trend of data that I’ve remarked on in other issues, there
is still availability in determining the flexible and
changing point on a graph where both sides of the profit
equation can maximize their revenue through continual
campaign management and negotiation. Partnering with
publishers who don’t demand outrageous pre-pays or CPM rates
off the bat is a good way to start up that curve.
Sam Harrelson is the Co-Editor of the Digital
Moses Confidential. He can be reached at
sam@digitalmoses.com
