Understanding your advertisers is one of the key factors in winning their contracts. If you know their services, products, advertising objectives, requirements, needs and goals, you can make your offer stronger by emphasizing the quality of your audience to smaller advertisers, or highlighting the number of page views (i.e. reach) to brand builders.

1. Number of Advertisers

If you have a large network of advertisers or a good sales team that can approach many advertisers, you have more demand for your given ad inventory and you can charge more for advertising. Thus, it is always a good idea to build, maintain and expand your list of potential advertisers.

2. Product Characteristics

CPC or CPA rate for a diamond advertiser is likely much higher than ad rates for a toothpaste ad. Knowing the products/services can help with targeting the right section of your website.

Research

After reading about different pricing methods, determine the best pricing model for your business. Find similar sites to your website and do a little research on their pricing. Put yourself in the shoes of a potential advertiser. The objective is to find a popular, relevant, high-quality website or blog at a reasonable ad rate.

Price Comparison

A really simple and effective formula for an advertiser to compare between one site to another website is: cost of the advertising space divided by the traffic that the ad will receive. The lower CPM rate the better. Let us consider these two blogs:

• Blog #1: charges $500 monthly for a 125x125 banner spot above the fold. It generates 100,000 monthly page views.

• Blog #2: charges $1,000 for a similar ad placement. It generates 500,000 monthly page views.

• Using the formula cost of advertising/traffic, Blog #1 has a $5 CPM while Blog #2 has a $2 CPM.

• Even though Blog #1 charges only half the price of Blog #2 upfront, it's actually less effective. Blog #2 is a better platform for advertising because of its high traffic and lower CPM rate.

The above process is a simple research on other websites, including your competitors. Try to determine an appropriate rate for yourself. If you charge too much, advertisers will go elsewhere. If you charge too little, then you're not maximizing your advertising potential.

Price Adjustments

After determining your expected rate, you can start to offer advertising to a few potential advertisers. Everything needs a starting point. You do not have to stick to a single pricing forever and you can always adjust your price over time. However, if your website is recently launched, try to offer promotions and discounts in order to build your advertiser network.

For example: You can start charging a low CPM for the first 3 - 6 months to let advertisers test-drive the effectiveness of their ads. Or you can charge a low CPM then gradually increases the rate as your traffic improves. You can provide incentives for early advertisers to lock in the low rates. However, communicate clearly to your advertisers on these price changes and your reasons. You want to build long term relationships with your advertisers.

Take the First Step

Determining the optimal advertising rate is a tricky business. This simple article offers you a head start on determining your rates. As you have more experience with advertising and the advertisers for your industry, you will find more factors that affect your rates and make appropriate adjustments. Good luck with your venture!