Dynamic Pricing CPM campaigns (dCPM). Great deal or rip off?

This will be the first part of a series of posts where I will get into a bit more detail about various aspects of running online marketing campaigns. I will try and post one of these per week and the goal will be to cover each item in some detail, explain some of the advantages, things to look out for and in the end give you my own personal take based on my experience so far. If you are not familiar with some of the terminology I will be posting a glossary as part of this blog which you can use as reference. You can also contact me directly and I will do my best to explain things in further detail.

So here goes: Dynamic Pricing CPM (dCPM) campaigns.

Dynamic pricing allows networks to vary the CPM price on each ad call (bidding price). Think of it as a giant auction for online media. Publishers open their inventory to the network's ad exchange which in turn allows advertisers to bid on that inventory.

The entire process is automated so the only thing you need to do, in theory, is agree on the maximum average CPM to be paid for each creative size, and the network will do it's best to lower the price of the inventory in order to hit your ROI goals.

Most networks will claim that the initial first few days of any campaign is a learning period during which their ad server is determining the variables that lead to conversions (such as content, user behavior, frequency, geographical data, time of day, etc).

So far so good, and in theory this all sound very appealing, as this model appears to give you the best of everything: you get to set your own price, target the audience based on the demographic that you want and get more bang for your buck; as this is supposed to be an auction based system that will get you more impressions for the average CPM that you specified.

Now, as you have noticed above, I highlighted the phrase "average CPM", because what usually happens is that networks tend to optimize campaigns based on what is most profitable for them and not what you really need. Effectively what I have seen from a lot of these networks is that they will push more expensive ads to your site, where they actually have a much higher profit margin and then they will also deliver a huge amount of very cheap worthless traffic in order to drive the average CPM price down. At the end of the day they will come to you and say that the hit your CPM target but you will be left wondering what went wrong. The quality and sources of traffic vary so much that there is no way to gauge if a campaign will work for you or not.

Now don't get me wrong, some times depending on what the objective of your campaign is, this model can be useful. If you want to increase exposure and traffic to your site targeting a specific geographical area or demographic and you want your ads to appear on a variety of publishers, this type of campaigns might help. However if you have clear targets on conversions that you need to achieve or looking to generate specific ROI, then I don't recommend working on a dCPM model. There are too many variables that are out of your control which will end up working against your campaign. 

In my opinion, nothing beats going out, negotiating with highly targeted publishers directly and agreeing on a specific CPM rates. That way you know what to expect based on your own KPIs. You know your site and how targeted traffic usually converts, thus you will be able to plan and budget accordingly. The dCPM model might get you more impressions for your dollar but its usually not the impressions you are looking for.