We talk with hundreds of billboard operators across the country every year, and one of the most common questions we're asked is how to set advertising rates for digital billboards.
We love it when we're asked this question, because we think many digital billboard operators set their rates based on their static boards or on gut instinct, and therefore miss out on a significant revenue opportunity.
For example, we recently worked with an operator in the Midwest who had set rates for his two digital billboards. After helping him with market research and taking a disciplined approach to rate setting, we suggested he raise his rates by 50 percent. His two boards sold out at the higher rate. Had the operator gone with his original rate, he would have left $115,000 a year on the table.
Developing a rate structure doesn't have to be difficult, but it does require a methodical approach. The three-step process we recommend to billboard operators includes three keys:
1. Understand your competition – and that doesn't mean static billboards. Digital billboards have much in common with other electronic advertising formats, including television and radio. Because of digital outdoor's flexibility and ability to communicate time-sensitive messages, it has much more in common with these other forms of media than with traditional outdoor vinyl, paper or painted boards. It makes sense, then, to index your rates to compete with these outlets. Make a list of area broadcast media and newspapers and research their advertising rates. That's where your ideal digital billboard advertisers are spending their money today.
2. Know your viewers. The more people viewing your billboard, the higher the advertising rate you can charge. That's why it costs more to advertise on a billboard in Times Square than on a highway in the country. There are a couple ways to measure viewers. The Daily Effective Circulation, or DEC, is the average number of persons potentially exposed to an advertising display. A new measurement tool developed by OAAA and TAB called EYES ON Impressions, or EOI, delivers the average number of persons who are likely to notice an ad viewed on an outdoor display. EOIs are available in all U.S. media markets.
3. Develop a CPM. The CPM, or Cost Per Thousand, is a tool that advertisers and media buyers commonly use to compare different advertising media, leveling the playing field between them. CPM is a measurement of how much a medium costs per 1,000 impressions, or people who see it. Since most advertisers want to make efficient advertising buys, the CPM is the tool they use to get the most with their budget. If you know the CPM for competing media — radio, television and newspapers — you can set your advertising cost using the following equation:
Total cost of advertising purchase = CPM x (gross impressions /1000)
For example, if you decide a competitive CPM is $2 and you know that your audience is 996,000 people/month, then:
Total cost of advertising purchase = $2 x (996,000 / 1000)
Total cost of advertising purchase = $2 x 996
$2 x 996 = $1992/month
From a rate card perspective, then, you would start with $1,992 per month per board.
Another factor to consider when setting rates is the length of the advertising contract. Typical time frames that board operators use are four, 12, 24 and 52 weeks. The longer you can secure a board with the same advertiser, the less time and energy you have to spend finding another prospect. It might be worth your time to give advertisers a price break on the cost of your board to get them to commit to a longer time frame.
Finally, be flexible and learn what the market values. Keeping space rented at attractive market rates is the surest way to make money.