Diversify your ad base to survive in the news publishing business

I lost an advertiser on one of my websites last week. As much as I hate to lose customers, I understand completely why she felt she had no choice but to not renew her ad campaign.

I’ll start with some background, which will lead to why these types of situations are important for news publishers to understand.

The advertiser didn’t quit because her ads failed to perform on our site. In fact, she enjoyed one of the highest click rates of any of our advertisers last month. Plenty of our readers wanted to learn more about her product. And she made sales.

But she didn’t make enough profit from those sales to cover the cost of the ad campaign. She was selling a relatively low-priced product. Not only that, most consumers would buy the product only once in their lives, making the future, ongoing value of having those customers next to nothing for her.

Here’s why this sort of thing is a problem for news publishers. So that I don’t have to dwell on the specifics of my personal site, let’s use an example from another industry. Let’s say you cover cars and publish an automobile news and reviews website. You’re selling banner ads on a straight CPM basis – run of site, the same rate for everyone.

Now your local Ferrari dealer can afford to spend several thousand dollars for a banner click that leads to a sale of a new Ferrari. Of course, not every click leads to a sale, but let’s say enough do that the Ferrari dealer can afford to buy banner ads at a CPM rate that works out to several hundred dollars per click. Nice for you, right?

Okay, now let’s say there’s a Ford dealer up the street. That dealer’s willing to pay a couple hundred bucks for lead that results in a sale of a new Ford. Let’s also say that enough banner clicks lead to Ford sales that the dealer’s willing to sponsor a campaign at a CPM rate that works out to a couple dozen bucks per click. Not bad.

Now let’s say that there’s a whiz-kid mechanic at a garage in town who’s developed this spectacular oil additive that his customers swear by. But he’s priced the additive around $10 a bottle. Lots of people who click his banner ad want to buy, but his profit on each bottle is only a buck or so. He can afford to buy a banner campaign on your site only at a CPM rate that works out to pennies per click.

So what are the ads on your website going to look like? Well, I hope you like looking at prancing horses, because you’re going to run as many Ferrari ads as that dealer wishes to buy.

That might not be a problem, so long as you’re running a website targeted exclusively at luxury sport car enthusiasts. But what happens if your goal is to be a broader automotive community, appealing to people with a variety of interests and budgets? A one-price-fits-all approach to advertising really only fits one, not all. While it’s appealing for beginning website publishers to go with a simple rate card, keeping it simple on your price structure can force you into serving only a single class of advertisers.

If you’re lucky, you’ll be left with the high-end, big-dollar sponsors (such as the Ferrari dealership). But if your readers are among the 99%+ who will never afford a Ferrari, your one type of advertiser might be the less lucrative Ford dealers, or the not-very-lucrative-at-all pennies-per-click advertisers, like the mechanic.

Serving a single advertiser, or class of advertisers, is never smart business in the long run. What happens when that advertiser goes out of business? Or market forces decimate a specific type of business? For how much longer would you want to be running a website whose sponsor base is print bookstores?

Diversifying your sources of income helps secure the long-term success of your publication. So while you should go ahead and run those lucrative Ferrari ads, also think about creating a new ad product priced for the Ford dealer. You’ll want it to be attached to content that won’t appeal to the Ferrari dealer, so he won’t try to cut his costs by buying the lower-priced ad. And you should have a way for the mechanic and other low-margin accessory vendors to get on your site, as well, because that advertising is content that might appeal to many of your budget-conscious readers.

This, ultimately, is why newspapers had all those different sections, Sunday magazines and neighborhood-zoned editions. It wasn’t just because that provided an easy “user interface,” if you will, for categorizing content. It’s because, at their heart, each of those sections, magazines and zones were unique advertising products, priced at different price points to serve different classes of advertisers.

Let’s not forget those lessons when developing and growing our own online news publications. We need to support multiple price points in order to serve the complete marketplace for advertising in our communities. I recently launched a new commercial directory on my website, initially designed for those “mom and pop” retailers who, as other industry consultants have said, “can’t spell CPM.” But I’ve found it’s also appealing to more sophisticated advertisers who need to buy at a lower ad rate, because that’s all their business models can afford.

My loss of that advertiser last week showed me that I need to be thinking about additional products, still. Again, it’s not just to serve advertisers. As I wrote before, hundreds of readers had clicked on those ads. They want information about products like the one that advertiser offers. If I’m going to serve those readers’ needs, I need to have ads – and coverage – about those types of products on my site. If I’m going to last in the news publishing business, I can’t rely on selling Ferraris.

Neither can you.

About Robert Niles

Robert Niles is the former editor of OJR, and no longer associated with the site. You may find him now at http://www.sensibletalk.com.