Making Sense of Cost Variance in a Digital RFP
If you’re a Business Owner, CEO, CMO or Marketing Director plunging into the new Digital market and your most recent RFP, you may have one running question… How are the per unit costs varying so drastically in all the contracts I’m receiving? As in all things, there are usually several reasons both on the macro and micro level. However, on an “Apples to Apples” comparison, this is one instance that usually cheaper per-unit costs is better. Let me explain why.
The Re-Seller Model.
Who does this? – your TV, radio station and newspaper; your ad agency with no tech component.
What do they do? – They buy inventory- from a reseller – who bought it from a wholesaler – who bought from an RTB firm – who brokered through the exchanges. And then after all these mark ups they sell it to you and your business. I have literally seen inventory marked up 1200% using this model.
Why do they do this? – Even though a lot of these companies will say they have an “in-house” team of experts, they are referring to their re-seller or wholesaler as their strategists and their technicians who are most likely 3-steps above them on the food chain. Most of these companies are attempting to fill their failing revenue models with the shiny new digital products. The client-facing reps are most likely poorly trained, and unaware of the newer, cutting-edge tech strategies and applications. The rep is really only focused on hitting budget as is their parent company.
Do the clients benefit? – They can but usually it’s a gamble. Most of the clients that stay with these firms do so for one of 3 reasons.
- They have a relationship with the rep or company and don’t wish to shop around.
- They don’t have the budget to work with a firm deeper in the food chain (most of these media companies will take almost any sized buy even if the odds of success to the client are slim to none).
- The client simply is uneducated to the fact there are better solutions out there. If you are going this way, make sure that you have clearly defined goals with your rep and know what your are getting. Red flags can involve the following: Flat CPM’s (a rounded number cost per impression is a guarantee your getting ripped off- the market just does not work like this); or over hype of big companies like Google/Facebook and/or over hype of old tech like SEO and SEM. Focus on Network buying/broadcasting as opposed to targeting people- if the campaign is simply designed to enhance your Radio/Print/TV buy, just run away.
Summary – You’re paying too much for too little to people who are way out of their depth of expertise. The only time you should swim in this side of the pool is when your digital budget is less than 40k a year.
The Advanced Agency Model.
Who does this? – Skilled Regional/National Agencies and Tech companies all with Strategic partnerships with RTB houses.
What do they do? – They are companies you most likely have a great relationship with and a successful business partnership. Instead of trying to be a “jack of all trades” like the last group, they know what they are good at and work hand in hand with a partner RTB company who knows what they are good at. They have better strategy, better tech and better pricing than most people out on the street.
Why do they do this? – The cost to set up an in house RTB team and get the right tech secured or developed will be somewhere between 7 and 8 figures over time depending on size and scale. Most RTB teams are tech geeks by nature and most agencies are pitch people by nature. It can and usually is a great relationship. A lot of times if your meeting directly with an agency “technician” its an RTB firms team member wearing the agency jersey. As these relationships are usually long standing and very strong as a client there is little to be concerned about here.
Do the clients benefit? – Usually yes. Most people in this category have a long-standing relationship with a sharp traditional agency that knows themselves well enough to realize that digital – and specifically programmatic – is its own animal and takes a special skill-set to master. By going this rout, you most likely will get the benefit of 2 firms working together under one umbrella. You will pay a premium for that but with most of your volume there you will most likely reap benefits from this approach.
Summary – If you have a long standing relationship with a large agency that has “specialists” to handle its digital buys you most likely fall into this category. Make sure you are getting deep dives into attribution and analytics. Your spend will most likely be north of 40k a year up to millions of dollars on digital. You will pay a premium to be here but it will be very reasonable compared to the numbers that your broadcast company will charge you. The campaign will be about your company and not about Google or Facebook.
The Deep End- Working with an RTB (Real Time Bidding) Brokerage House.
Who does this? – Not many. This is a very specialized niche. To fit in here the company must have an in-house team of operators handing the exchanges like a hedge fund has day traders buying and shorting their assets. This is a hands on approach that many claim to have but few do. You literally need guys like Stick and T-Rex in your office grinding every day.
What do they do? – A great team like Digital-Ignite will take the meta data of your audience both online and offline and craft a unique strategy to target your audience. This will not be a broad stroke approach. An in-depth strategy will talk to people, and based off the activity that each person takes in response to the campaign, different messaging will come to fruition. The team will make all components bid against each other for your buy. This includes Facebook and Google. Digital Ignite calls this a “stacked deck approach”. A great company will also use attribution technology to show you a full ROI on your investment.
Why do they do this? – This is what they do. They eat, sleep, and breath this. There is no radio, no TV, no Print, no other media buys. They are tech companies who excel at digital advertising. They cut all the middle men out and negotiate right with the exchanges every second of every day.
Do the clients benefit? – As long as the spend is right for the strategy, 100% yes. The client gets the maximum return on investment here. They are talking to people not networks. They can reach 98% of the internet and execute to their specific campaign goals. You can reach 5-10x as many qualified people for the same investment that you would with a re-seller model and everything will be geared towards attribution- not clicks and impressions.
Summary – If you have a budget of at least 100k a year for digital you should be here and nowhere else. Make sure you find the right fit with a company that will work with your data and tell your story. If you need a place to start, hit us up at Digital-Ignite.