What would be a reasonable price for a CPM ad?

If DSP company A delivers 3X CTR when buying on Ad Exchanges then company B, can it price(charge) 3X higher CPM's?

• For the matter of question lets assume that CTR is the only indicator of quality

• Answer:

  Your question implies some confusion between different pricing models. Let me try and outline the different varieties available in the market. DSPs traditionally work on a cost-plus model: i.e., they charge you the exact CPM (cost per thousand) price that they have paid to the exchange and then they add a fixed margin to cover their own cost, typically ranging from 5 to 10% for self-service (you only use their technology) and from 15 to 30% for full service (you use their teams and advice in addition to their technology). So the simple answer to your question is “no”: if DSP A buys the same inventory as DSP B, they should charge you the same CPM, plus the margin you have agreed upon. Of course, this cost-plus model is not necessarily tied to a CPM pricing structure. It is perfectly possible that the DSP charges you the CPC (cost per click) or even CPA (cost per acquisition) that they have paid to somebody else and adds the same margin on top. Some DSPs already do so for display advertising on Facebook, which has CPC pricing. But since your question is about buys on ad exchanges, CPM is implied. Ad exchanges sell on a CPM basis only, since they have no way of tracking post-impression effects like brand lift, click-through or acquisition. A good DSP _is_ able to track these post-impression effects and can optimize their choice of inventory so that they maximize the objective the client wants to reach, e.g. more click-throughs. In your example, DSP A is optimizing the campaign for click-throughs and we can assume that it is buying different and probably more expensive inventory than DSP B buys, so as to achieve this higher click-through rate. This means that DSP A is paying more to the exchange, and therefore can also charge you a higher CPM (plus associated margin). Advanced DSPs, however, would make sure that the better inventory generates proportionally more click-throughs than just the increase in price would warrant. In other words, they would try to generate 3X click-throughs at 2X or 2.5X CPM price. So the not-so-simple answer to your question is “not quite”: if DSP A optimizes the campaign more than DSP B, you can expect the CPM to become more expensive but not quite as expensive that it would nullify all the benefits of the optimization. Finally, the best DSPs (such as , my employer) are able to predict the market so accurately that they can take away a lot of marketer risk and "guarantee" conversions within a certain CPA constraint, or any other measurable objective that the marketer wants to reach.