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Tips to Determine the True Cost of Your Programmatic Supply Chain

Tips to Determine the True Cost of Your Programmatic Supply Chain

By & Maria Breaux   August 3rd, 2016

You’re in a relay race and this is what you have to do—run with a bucket of water to your next team member, without spilling any of the water. The next player does the same, and so on, until the last player finishes the race.

The object of the contest is to not only preserve as much water as possible, but also to know exactly how much water you lost throughout the course of the game. Oh, and another thing—the buckets are different sizes, you’re playing at night, and you’re blindfolded, and so are your team members. And, you’re playing against a lot of other teams.

We call this race “the programmatic supply chain.”

The Role of Programmatic Intermediaries

As we mentioned in our first post in this series on programmatic transparency, the programmatic supply chain is made up of intermediaries that may or may not disclose their pricing model. We also mentioned that a recent ANA/Forrester study revealed that 55 percent of marketers are concerned with the opaqueness of the intermediaries along the supply chain. This is up from 21 percent just two years ago.

Like our shot-in-the-dark relay race, advertisers often have to settle for hidden bid prices, secret media value, and even kickbacks. What if the increased concern was translated into clear, actual dollars? How do you get bottom-line clarity? If you haven’t asked your programmatic partners what they’re charging you, now’s the time.

Let’s look at the intermediaries, then assess the average take rates of each one.

Anatomy of the Supply Chain

Here’s roughly how the typical supply chain flows. Note that there’s lots of bi-directionality, and the model changes dramatically depending on the services included.

  • Data/Targeting
  • DMP technology
  • DSP technology
  • Ad serving (advertiser side, publisher side)
  • Exchanges and ad networks
  • Publisher
  • Verification
  • Ad blocking
  • Managed services fees through an agency or media buying partner (or lower fees if you’re accessing a SaaS platform)

In case you need a quick primer on each supply chain partner, read our blog post on the eight main players in the programmatic ecosystem.

Determining Cost

We’ve estimated it would take you one to two hours to determine what you pay each of your supply chain intermediaries using IAB’s programmatic calculator. And, that’s if you already know what you’re spending with each partner.

Although it’s challenging to pin down exact cost amounts for each intermediary in the supply chain, it’s not impossible. Knowing the average take rates and ranges allows you to establish benchmarks you can use as a guide. We strongly recommend taking the time to measure what you really spend so you can improve your bottom line. (Click the image to enlarge it.)

Programmatic Infographic_R5

Fine-Tuning the Fees

The various cost models you might encounter will alter your numbers, so here are some additional aspects to consider as you complete your appraisal.

  • CPM-based fees: Before you buy any media, make sure you understand the nature of any fixed fees charged for a thousand ad impressions. How are the fees determined?
  • Percent of media fees: If you’re working with an ad agency, ask them for access to their spending model. Find out how your money’s being allocated.
  • Flat fees: Figure in any fixed costs exchanges collect from you.
  • Arbitrage: After purchasing media, some agencies mark up the cost before they sell it back to you. If you’re working with an agency, make sure it discloses this amount.
  • Viewability: If any of your impressions aren’t viewable, you should get a credit toward those wasted impressions.

Gaining Clarity in Your Cost Model—ROAS to ROI

Digital marketers, and agencies that support them, are on chronic overwhelm with the choices of platforms, programs, vendors, and the consistent pressure to improve return on ad spend (ROAS). But with deeper understanding of the supply chain and an increasing availability of advanced attribution and offline measurement, closing the loop on profitability is a worthy and attainable goal.

True ROI is within reach, so long as media agencies and ad tech vendors evolve to become more transparent and focused on driving business performance, not just advertising performance.

We hope these tips make it easier to achieve greater transparency in your specific programmatic supply chain, and that the path becomes more of an easy route planner than a blind relay race.

Remember, if you already know your partner spend and have the time, you can add it all up with IAB’s Programmatic Fee Transparency Calculator.