How to Price Advertising Space
When setting your rates for display advertising, you’ll need to consider more than just your expenses and desired profit levels. Depending on your other sources of revenue and what leeway your sales force will need in making deals, you’ll need to give yourself a cushion. Start with basic number crunching, then discuss a variety of other factors with your financial and sales departments to give yourself a comfortable range for pricing your advertising space.
Determine your revenue needs, including your costs to cover manufacturing, overhead and profit. Manufacturing costs include expenses for creating a publication, such as printing, editorial, design and mailing. Overhead costs include rent, utilities, insurance, marketing and staff. Divide your total expenses by the number of issues you have to get a total cost per issue. Determine the average number of pages you will have per issue to calculate a cost-per-page to publish the magazine.
Calculate the amount of space you have available for ads in your publication. Include the number of full-page and smaller ads you believe you will have available, adding the fractional pages to determine your total number of pages available. Many publications use a 50:50 or 60:40 ad-to-editorial ratio.
Divide your cost per issue and desired profit per issue by the number of pages you have available for advertising to get your minimum page rate. For example, if you have $50,000 worth of expenses each issue and want to make a profit of $20,000 per issue, divide $70,000 by the total number of ad pages you have available.
Compare your cost per advertising page, which should include your desired profit, to your competitors. Do this using a cost-per-thousand, or CPM, calculation. Divide the cost of one page of advertising in your competitor’s publication by its circulation to determine the cost to reach 1,000 readers. If a full-page ad in a competitor's 25,000-circulation magazine costs $2,000, divide $2,000 by 25 to get a CPM of $80. Compare that to your cost per ad page to determine if you can use that number to compete, if you can raise it or if you need to lower the price.
Talk to your sales staff about their need to be able to discount your advertised rates to determine if you need to set your rates higher than your desired ad page price. For example, if you need to make $1,500 per page of advertising to cover your costs and make a profit, and the sales department wants the ability to discount 25 percent of your ad inventory by 15 percent, raise your $1,500 page rate accordingly to absorb these discounts.
Add a cushion to your desired page price to address unexpected expense increases, bad debt and other occurrences that might cause you to lose sales. Consider the effect of other sources of revenue, such as links and banner ads on your website, to determine if you can lower your rates to be more competitive.
Talk to potential advertisers to gauge their interest in your magazine’s content, target audience, circulation numbers and prices to determine if you will get their business and be competitive.
Things You Will Need
Competitors' media kits