Trends Report: When Do I Get Paid?: The Metric of Pay Day
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 [email protected]
