How Much Should You Spend on Display Advertising?

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By: Mike Krass

As a September 2011 eMarketer study revealed, online ad spend will top more than $31 billion by the end of 2011. Over the next three years, eMarketer estimates that number will increase to nearly $50 billion.

With that number in mind, here comes a one of those fabulous loaded questions out of left field from your client:

"How Much Should We Spend on Display Advertising?"

Your client is opening the floor to your team, the experts, to deliver an educated recommendation on the dollar amount they should be spending to effectively reach their audience.

Instead of pulling a number out of thin air (media planners would never do something like that!), apply this simple mathematic equation to support your recommendation.

Audience Size x Message Frequency / 1000 x CPM

Audience Size: Using MRI, Nielsen @Plan, or ComScore audience data (to name a few popular sources), size the target audience that you are going after.

For the sake of argument, let's assume an audience comprising women aged 25–54 that live on the west coast is made up of 7,500,000 people.

Message Frequency: How many times do you need to deliver your message to your target audience on a monthly basis? Different verticals demand a variety of frequency levels to effectively reach your audience. Consider purchase cycles, product MSRP, and seasonality, to name a few factors.

Again, for the sake of argument, let's assume that the optimal frequency is 10.

CPM: This number is based off of loose planning estimates. For example, if you are buying a few premium sites directly from publishers (New York Times, Wall Street Journal, etc) along with a DSP (that comes with an extremely low CPM), you can create a loose estimate of an effective CPM.

Let's assume a CPM of $10.50.

Now, let's do the math...

Audience Size (7.5 MM people) x Message Frequency (10 per month)/1000 x Purchased CPM ($10.50) = $787,500

In Closing

Apply as much science (i.e. mathematical support) to your working media budget recommendation as possible. Clients will rarely be upset with your team if your recommendation is rooted in statistical evidence, and you can always rearrange the elements of the equation to please the client.

Keep a few additional considerations in mind:

Geographic Constraints: Do you really need to buy every single impression in the Dallas, TX DMA? You might run the risk of frustrating more potential customers than actually acquiring them.
Message Frequency: Consider elements such as sales cycles, product MSRPs, and more to create an effective frequency.
Seasonality: Remember, Q4 inventory is always more expensive than any other quarter. Keep that in mind when creating purchased CPMs.
Minimum Spends: As MKG Media Group puts it, you must take into consideration publisher and category-specific minimum spend levels in order to effectively reach your target audience.

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About the Author

Mike Krass is the founder of MKG Media Group, a Bay Area digital media shop that specializes in measurable media solutions for small and medium-sized businesses. When not walking his puppy or sky diving around the US, his personal musings can be read on Twitter at @mikekrass.

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