Local media organizations have to be protective of their profits in the digital ad sales category. These tactics have a much different cost of goods than radio spots. On top of that, you also have sales commissions to consider. However, one of the biggest threats to digital advertising sales margins is excessive service fees and monthly minimums.
Let’s review how these sometimes-hidden expenses affect revenue.
What Are Managed Service Fees?
Managed service fees are pervasive in the digital ad sales world. They are most common with agencies. If you outsource digital ad execution to such a business, these charges will eat away at margins. It may force you to increase pricing on tactics, which could impact how competitive you are in your market.
Third-party digital platforms may also levy these fees. They are separate from the actual software costs related to setup and ongoing use. Rather, this expense relates to the technology provider’s “service” of your account.
What you get for this fee may vary, from technical support to strategy consultations. Sometimes, it’s more of a “junk” fee with no value behind it.
If you’re currently in this model, rising operational costs will continue to be a detractor to profit.
What Are Monthly Minimums in Digital Advertising Sales?
The next concern is that agencies and third-party digital systems often require a minimum number of orders each month. If you don’t make the minimum, you may see higher media, service or software fees.
These organizations obviously have to make money, but should it come at the expense of your digital advertising sales margins?
Ideally, you want to implement a third-party digital platform that doesn’t require this minimum. It’s beneficial for stations that are building their digital sales foundation. If operating costs outpace revenue, it will be harder to grow.
What Can You Do to Protect Your Margins?
First and foremost, you need transparency around costs for every component: software, media, setup, special requests, etc. Nothing should be in the fine print. It should also be in the open so you know the investment required.
Second, take a hard and detailed look at your current framework and what is affecting margins. Look at all the fees outside of media and software costs to quantify the impact of service charges and monthly minimums.
After doing so, you should compare different operational models for digital advertising. The most common are:
- In-house operations: Your employees traffic and execute campaigns.
- Outsourcing: You transfer all ad execution to an agency.
- Third-party digital: This is the software you use to propose and order ad operations conducted by the provider.
Evaluating options and understanding all the costs helps you forecast what profits you can expect.
Local media companies have great opportunities to expand revenue by selling digital advertising. However, you need a model that doesn’t chip into what can already be slim margins, depending on the tactic.
You can learn more about improving digital advertising sales margins by reading our e-book, You’re Selling Digital Advertising — Now What? Streamline Operations and Grow Revenue with the Right Digital Ad Execution Framework.
