October 26, 2015

How to Evaluate Ad Revenue Potential

How big is your magazine's advertising universe?

When evaluating a possible ad sales opportunity, whether it’s for a website or a magazine, it’s important to figure out what the absolute most you could make in ad sales is. We call this figuring out what your universe is worth; it's also referred to as evaluating your total ad revenue potential.

Picture that you’re looking to purchase a coffee Thermos on Amazon and you see 80 options. Technically, your universe is 80, in terms of how many possible Thermoses you could buy. That’s your “total universe.” In reality, once you evaluate which Thermos is in your price range, which Thermos color you want, and which Thermos holds the amount of coffee you want (let's say that narrows it down to 15 Thermoses), that's your “real” universe.

The same concept works in ad sales. If I’m selling ads and I want to figure out what my total universe is, I look at all of the possible advertisers my magazine could have. For example, if I were selling ads for an automotive magazine geared toward garage or mechanic shop owners, my universe would include endemic categories such as software, tools, paint and uniforms. After identifying the endemic categories, I would then assess how much possible money advertisers in those companies could spend on ads to figure out my total universe.

Why Is It Important?

Figuring out what your universe is worth is extremely important in setting realistic goals. For example, if I sold a magazine ad to every possible advertiser in my universe and they all bought a full-page ad for all 12 issues of the magazine, I could hypothetically make $12 million dollars. But that’s not realistic, in the same way that not every Thermos on Amazon will fit your needs. 

However, in knowing what your maximum possible revenue could be (for example, $12 million), you can more easily figure out what your attainable goals should be.

Often times, people work backwards in setting their ad revenue goals. Instead of figuring out the worth of their universe, they might figure out how much their magazine costs to produce, print, mail and sell, and then figure out their ad goals. Or they might look at a similar publication, see what their ad sales are and just assume it is possible. I don’t think people see the true value in putting the time and effort into figure out what their universe is upfront.

We’ve looked at some projects at our agency in which we would need 80 percent of the total universe to make the publication profitable, which made us realize that it wasn't a good project for us. In another instance, we figured out that we would only need about 20 percent of the universe to make a project work, in which case we got started on the project with confidence and excitement.

When Is it Necessary?

Early on, you should determine the importance of accuracy when figuring out your universe; sometimes a general number is just fine. It all depends on your goals. For example, if you look at your closest competitor and see they have 20 times more ad revenue that you’ll ever need, you probably don’t need to go through the entire process of figuring out your universe. In most other cases, figuring out the worth of your universe is extremely important. For magazines or websites that are launching, figuring out those numbers can determine whether or not a project moves forward at all.

At the end of the day, it all depends on goals. You can have a very small universe and still be successful if you’re not trying to generate huge sums of money. Maybe you just need a small amount in ad revenue to make a project work. In this case, there's no need to spend much time figuring out the universe. 

But if your goal is to put out a large monthly magazine and your universe is rather small, your goals aren’t realistic and that project won’t likely work.

How Do You Do It?

As I mentioned above, most of the time it makes sense to evaluate the worth of your universe on a specific, detailed level.

In order to do that, you first need to figure out the advertising categories that are endemic to your publication (e.g., the categories above that were relevant for the automotive magazine). Next, you can scour the Internet to figure out how many viable companies there are that fit into those categories. Next, multiply the number of viable companies in each category by the estimated ad frequency, and then multiply that by your page rate. This gives you a general idea of the maximum possible ad revenue for your universe.

Some other tips:

  1. Try out software programs such as IMS. They can help you figure out what competitive magazines are doing.
  2. Subscribe to competitors’ magazines to assess who is advertising where and how often.
  3. Don’t be afraid to look at your competitors’ performance. If you know your competitors have put money into researching their universe, you can sometimes use them as a benchmark for conducting a rough analysis of an ad buy.

I think a lot of people are in disbelief that they can come up with a real, quantifiable number to figure out the worth of their universe. But with a little time, research and an educated guess, I believe that most can. And once they do, they can set more realistic and achievable ad revenue goals and move forward with much more confidence. Request your FREE 30-minute marketing assessment today!

 

Adam Weiss

Adam is a business development and sales-and-marketing expert who has spent more than two decades in the media industry. As the manager of content and advertising portfolios for local, national and international associations, he has launched tradeshow advertising venues; overseen ad sales into countless publications; launched and published digital magazines and annual directories; and developed new sources of ongoing advertising revenue for clients.