Pricing advertising

Visibility is a key to advertising effectiveness.

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Selling advertising space is a proven method of boosting company income in a range of industries, and certain industries rely almost entirely on advertising revenue to earn a profit. Advertising sales can be structured with a lean philosophy because there is no inventory to store or services to deliver. Advertising is a highly saturated and competitive industry, however, and understanding how to price advertising space can be just as important as building a large circulation for your outlet.

Step 1

Take an inventory of all the advertising space you have available. Write down the specific number and sizes of print ad spaces in your publication, for example, or the number and length of ad spaces available in your broadcast. One advantage of smaller advertisers is that they are able to offer the same range of ad sizes, lengths, colors and features as larger media outlets.

Step 2

Calculate the ratio of the sizes of your different advertising spaces. This will be useful in a later step. For example, if a print publication offers full-page and half-page ads, the ratio of the size of the full-page ad to the half-page ad will be two to one.

Related Reading: Definition of Pricing Strategy

Step 3

Consider all of the costs you wish to cover with ad revenue. For subscription-based media outlets, consider the costs, if any, left over after all subscription income is taken into account. For websites and free media outlets who rely completely on advertising space, consider the entire range of operational, administrative and marketing costs you have to cover.

Step 4

Determine and write down your adverting spaces' reach or circulation. While smaller media outlets can offer the same sizes and types of ads, they cannot offer the same reach or circulation as larger competitors. Because of this, smaller advertising outlets will not be able to charge the same prices for comparable ad sizes, lengths and features.

Step 5

Write down each of your competitors' pricing structures, as well as their reach in terms of the number of people who view their ad spaces each day, week or month. Price quotes are available to the public from most advertising outlets, and most marketing managers will be glad to discuss their circulation numbers with interested parties. Do not obtain this information by unethical means; always be upfront in your requests for information.

Step 6

Calculate the average of your competitors' prices for ad spaces comparable with your own, and calculate the average reach of your competitors. Use your competitors' average prices as a starting point for setting your own, and adjust your prices up or down to reflect the difference between your reach and competitors' average reach.

Step 7

Using the rough numbers from the previous step, add up the total income you can expect if you sell all of your available space at your rough price figures, and compare the total with the costs you calculated above. If the income turns out to be too low, you may need to re-evaluate your cost structure or consider slightly raising prices. If the projected income is significantly higher than your costs, consider bringing the prices down a bit to gain a competitive advantage.

Step 8

Consider the size ratios you calculated. Look through your new pricing schedule and make sure that the relative prices of your ad spaces do not exceed the size ratios. With the full-page and half-page ads mentioned, for example, make sure that the price of the full-page does not exceed twice that of the half-page. Bringing relative prices for larger spaces lower than their size ratios can add value to the more expensive spaces, increasing the number of businesses who purchase your larger spaces.