Guide: How Much Does Programmatic Really Cost?
Don't let fees and confusion burn a hole in your wallet. Like your morning coffee - it deserves a disproportionate amount of your time and attention.
Decoding programmatic costs from agency pitches is a bit like trying to solve a Rubik's cube while blindfolded. Each agency presents a colorful, seemingly straightforward offering, but the fees are cleverly ambiguous.
In the programmatic world, the term "working media" is…fluid. For purists like me, "working media" should only be the cost of the inventory itself. Simple. All other costs either fall into the category of pass-through vendor charges or constitute the service fees offered by the agency.
A working media percentage greater than 80% is excellent. Anything less than that, I call the “danger zone.” Anything below 70%…yikes.
However, how some agencies handle these costs would make a Vegas magician proud. They shuffle these fees around, give them fancy names, and hide them in the fine print. This creates a labyrinth of costs that's nearly impossible to navigate for a non-digital media expert.
To be fair, all of the major agencies I work with are transparent about fees — when asked. It is the “asking” bit that is crucial. Please, I beg you to ask!
So here's a user-friendly guide on agency-managed programmatic fees. Consider this your compass in the wild seas of pitch evaluation and agency relationship management.
First and foremost, you 🏻 need to direct the show. Clearly define how you want the costs to be laid out and disclosed. Literally, provide the template. If you let the agency stage the play, you'll likely end up with a plot twist you didn't see coming.
The FTE vs Consumption Balancing Act
Most parts of the biddable media activation workflow are neatly included in your contract under the full-time-employee (FTE) staffing plan at your agreed hourly rate. However, a trend among agencies advocates for transitioning towards a "consumption" model, where the client pays a separate fee contingent on volume.
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Switching from FTE to consumption is like trading your reliable old sedan for a shiny new sports car – it may look like a win, but it's designed to burn rubber and your wallet. It introduces more variables where costs to you can be reduced in one area (creating a mirage of savings), while driving increases elsewhere.
Agency services frequently added into the biddable ecosystem include optimization fees, reporting/analytics fees, and the pièce de résistance… targeting data fees. While optimization and analytics are often covered in an FTE model, targeting data fees are a stand-alone beast, a juicy profit driver for many agency holding companies.
Ad Serving and Verification
Ad Server Fees: If you're not using an ad server, you're missing out on the bread and butter of your campaign. These CPM-based fees should be a pass-through cost, untouched. No markup.
Verification Fees: Verification providers like MOAT, IAS, DoubleVerify, and Pixability are essential in both prebid and postbid forms. Postbid fees should pass through cost-free. Prebid fees, however, will be billed back to you via your demand-side platform (DSP) that activated the campaign, including the verification vendor's fee and a commission for your DSP. Kind of like tipping your waiter and the restaurant owner at the same time.
Demand-side-platform (DSP) fee: A figure guarded by agencies the Colonel’s 11 herbs and spices. In the past, the DSP fee could swing wildly from one agency to the next, making it a bragging right of negotiation prowess and market influence. Today, however, DSP fees have become predictable and commoditized.
Here's the lay of the land on DSP fees that can significantly impact your total cost. In fact, the DSP fee is not “one” fee. It is a menu of fees.
Open Market Fee: This is like diving headfirst into the crowded pool of the open marketplace. The DSP fees are at their peak here as you're essentially trying to gulp from the market's firehose, seeking the maximum number of available impressions. You can narrow down your choices by targeting segments and other criteria, but the depth of partner curation is quite shallow.
Private Market Place Fees (PMP): In the world of PMP, it's all about exclusivity. Your agency, acting as your suave emissary, negotiates a deal with a publisher or group of publishers for privileged access to their inventory. Think of it as the VIP lounge of ad buying. However, you are not the only VIP. Private marketplaces can be one-to-one or one-to-many. In other words, you might be the only approved buyer in a certain deal, while in others, you may still be competing with multiple buyers. PMP deals usually come with a different DSP fee compared to the bustling bazaar of the open market. It's wise to request these fees, as a percentage of spend, to be laid bare in your pitch.
Programmatic Guarantee Deals: This is the lovechild of traditional ad buying and programmatic's targeting capabilities. The publisher agrees to sell a fixed amount of inventory at a guaranteed rate. You can play around with personalized creative or decide which product ad to serve a consumer within the reserved inventory.
Preferred Deal (or the elusive "first look"): Picture this as a somewhat commitment-phobic version of reserved deals. The advertiser gets to purchase a publisher's inventory at a fixed price but without being tied down to a specific number of impressions. It's like being allowed to peek at each auction item and decide whether you want to bid or not. This deal type is growing more and more rare.
Programmatic Owned & Operated Inventory: Some DSPs are part of larger conglomerates that also own their own publishing inventory. This setup is somewhat akin to a family business - if you use the company's DSP to buy its inventory, the DSP fees are usually quite low. It's their way of nudging you to buy more of the inventory they own. The programmatic fees are low because the seller is presumably making a margin on the price of the inventory itself.
Consider this: we've just parsed out five different campaign activation types, each sporting its own range of fees as variable as a weather forecast. Add to this a variety of ad servers and verification vendors to choose from.
Now, multiply these scenarios by the number of scaled DSPs in the market. There are about 5 to 8 key players that virtually everyone uses. The result? You're left facing a kaleidoscope of possible scenarios, a matrix of hundreds and hundreds of variations that could impact your pass-through costs.
So next time you're sifting through agency pitches and finding it as challenging as comparing apples to orangutans, remember the complexity of the programmatic landscape.
The data and tools used to segment and target and audience in programmatic come in many, many forms. There's a sprawling marketplace of data and segment providers nestled within the DSP, agency-loaded segments via proprietary tools, and of course, your own first-party data.
Let's take a deeper dive:
The DSP Data Marketplace: DSPs run a bustling marketplace, brimming with data providers conveniently packaged inside your DSP account. Imagine walking into a candy store where every confectioner offers a tantalizing array of sweets, all available by the pound. The fee charged by the data vendor (usually a CPM) is billed back to you by the DSP, not the candy maker. Unfortunately, these CPMs often bear 'luxury tax' price tags, seldom discounted. The DSP itself will offer targeting segments for you to use, ranging from “free” to quite expensive.
Agency-loaded Data: Major agencies, with their proprietary tools, offer their own targeting and segmentation solutions. These segments are then loaded into the DSP. Some of these data segments are members-only clubs, open for all of the agency's clients to use. Others are more like a bespoke suite, exclusive to you if they were tailor-made to your objectives. There's a fee for onboarding or using these segments, charged back to you by the platform, in addition to a fee for the agency's data tools. The price tag depends on the 'haute couture' level of the segmentation. 👀 See: Customer Data is Gold
Your First-Party Data: This is the data that's closest to home - audiences you already have a relationship with. This data is gold and should be treated as such. You can load these customer segments directly into the DSP for a fee or entrust them to your agency to organize, transform, and enrich... and yes, they'll charge a fee for it too.
Let's have a reality check on third-party data, including agencies. As Richard Kramer from Arete Research astutely reminded me, most third-party data has the accuracy of a blindfolded darts player.
"[It's] no better than a coin flip to determine male or female," Kramer said.
The targeting data marketplace, whether vendor or agency-owned, is a gold mine for margin-making, second only to the actual ad inventory. Your focus should be sharply tuned to this area when scrutinizing your agency costs and pitch promises.
Treat it like your morning coffee - it deserves a disproportionate amount of your time and attention.
Transparency: The Billion-Dollar Win
Remember, when it comes to programmatic advertising, you're not just buying space on a website. You're investing in a sophisticated, multifaceted service that's part data science, part creative, and all business.
Now that we reviewed the basics of the programmatic landscape, you might be thinking, "How do I even begin to compare pitches and understand my true costs?" You're not alone. This is the billion-dollar question on the minds of clients worldwide.
One might be tempted to rely on media auditors to navigate these choppy waters 😉. Still, unless your auditor is an expert in programmatic, they will likely struggle to uncover all the possible areas where costs could be layered in. It's more than just reading the numbers; it's understanding the full context of the rapidly evolving ad tech landscape.
Transparency isn't just about having a clear view of the costs. It's about understanding the value those costs represent and ensuring you receive fair market value for your investment.
In this high-stakes poker game of programmatic costs, knowledge is power. The more you understand the complexities of the programmatic landscape and where costs can creep in, the stronger your position when sitting at the table with your agency.
Instead, it falls on you, the advertiser, to take charge. Request a breakdown of all the potential costs across the campaign lifecycle. Ask for detailed explanations and examples.
Be persistent in your pursuit of clarity.
Thanks for the post - heads up that the first bar in your infographic adds up to 90%, not 100%.