• by Jeff Kaldahl , November 4, 2014

Pricing programmatic inventory -- be it display, video, mobile, or social -- can be more complex than it might at first seem. There are plenty of cost models, from CPM, eCPM (electronic CPM), dCPM (dynamic CPM), and on and on, but all too often we fixate on these models without ever looking at the price relative to the campaign's performance.

Sure, CPMs are a good way to understand cost, but when looking at the price of your inventory, you need to understand which tactics will lead to the best performance and ROI. Focusing only on how much the inventory costs upfront without understanding whether you're getting your money's worth ultimately makes little sense.  Your programmatic  partners may say that you can do better by spending either more or less. And you can -- and should -- do plenty of testing to ensure that you’re reaching the right audience. But even when you're doing everything right, settling on a reliable pricing structure can be hard.

What makes tying costs to performance so challenging? For one thing, focusing on one goal often means that you won’t hit another goal. For example, there's an inherent conflict between click-through rate (CTR) and cost per completed views (CPCV) in a video campaign. You want the user to click on the ad, of course, but if the consumer does click before the video is done playing, you don't end up with a completed view.

Take the case of a company that wants to reach a specific audience and has capped the cost at a $5 CPM. A publisher or social platform might then take that number and cap the cost on its end at $1.90. Sure, lower CPMs can look great. Who doesn't like a better price? But if you're trying to reach more premium inventory, that lower CPM isn't likely to bring you closer to your performance goals. Indeed, focusing on the lower price can derail an entire campaign.

In another example, brands are now asking to pay on a viewable CPM (vCPM) basis. They want brand lift and to cap pricing at a certain point -- and they don’t want to spend money on inventory that’s never seen. In other words, the constraint is being put on price when they are essentially looking for quality (viewable inventory across a contextually relevant audience). Higher pricing would yield better results, but the brand never achieves these results because of price constraints.

As you can see, getting a great price isn't the end of the story. Sometimes in digital advertising, you only get what you pay for.

So what pricing model do you use? Are you more focused on cost or performance? Just remember that unless you’re clear on how your ads are performing, you can never be sure if you’re getting the best price.