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Calculating Media Costs - Briefing
How Are Media
Costs
Determined?
A variety of different factors influence the rates charged by promotional media.
These factors include:

Circulation (size of the audience)
o
Circulation is the most significant factor affecting media costs.
o
In most cases, the larger the media vehicle’s audience, the higher the
cost of advertising space or time will be.

Production costs
o
Production costs vary a lot within and across media.
o
High-quality television and magazine advertisements can cost a great
deal to produce.
o
On the other hand, local radio and newspaper advertisements are
relatively inexpensive to produce.

Preferred space positions
o
Airing an advertisement at a specific time or running it on a particular
page generally costs more.

Available discounts
o
Some discounts are available to reduce the costs of promotional
media.
o
Discounts are often offered on the basis of size, frequency, or dollar
volume.

Demographic makeup of the medium’s targeted audience
o
You can typically expect to pay higher advertising rates in media
vehicles that have narrowly defined audiences than in ones that are
targeted at general audiences.

The vehicle’s editorial climate, credibility, and prestige
o
A publication like The Wall Street Journal has greater credibility and
prestige (and typically charges more) than the National Enquirer.

Reproduction quality
o
Magazines with excellent reproduction quality, such as The New
Yorker, can command higher rates than publications with lowerquality reproduction.
Calculating Media Costs - Briefing
Determining
Costs for a
Medium
Each medium is unique, with its own terminology used to describe how its
promotional time or space can be purchased. The factors that influence the
final cost and the kinds of discounts for which an advertiser can negotiate also
vary. Let’s consider each medium:

Newspapers
o
Newspaper circulation and audience composition are the major
factors in determining newspaper advertising rates.
o
Newspaper advertising production costs tend to be very low; many
papers do not charge the advertiser for any production costs.
o
Media costs can increase as a result of:

Position preferences

Color requirements
 Split-runs (a printing technique that allows publishers to print
different ads for the same product in alternating copies of the
publication)
o
Newspapers have traditionally charged less for local advertising than
for space purchased by national advertisers.
o
Rate information is provided through rate cards (price lists showing
rates for space or time) made available to prospective clients.
o
Newspaper space is primarily sold in standard, advertising columninch units; types of rates newspapers offer for these units include:

Flat rates

Sliding-scale rates

Combination rates

Magazines
o
Magazine rates are primarily determined by circulation and audience
composition.
o
Production costs for magazine advertisements can be quite high.
o
Magazine publishers pass production costs on to the advertisers,
making the average total cost for magazine advertising considerably
higher than that for newspaper advertising.
o
Additional charges may be incurred for preferred magazine space
(e.g., cover positions).
o
Nearly all magazines offer color production for an additional charge,
but the additional charge varies greatly.
o
Other production options which increase the rates which a magazine
charges include:

“Bleed” pages

Gatefolds

Spreads

Split-runs
o
Magazines offer size, frequency, and dollar-volume discounts and
combination rates.
Calculating Media Costs - Briefing
Determining
Costs for a
Medium
(cont’d)

Television
o
As a promotional medium, television offers many advantages, but
costs can be high.
o
A larger audience and higher audience ratings mean higher rates for
space, or in the case of television, time.
o
Time availability is a significant factor in determining the cost of
television time; demand for time during peak winter seasons is high,
and time availability is low, causing rates to increase.
o
To obtain lower rates, advertisers can purchase run of schedule
(ROS) time; ROS rates are lower because the ad is run at the
station’s convenience rather than in a specific time slot.
o
Commercial length influences media costs in two ways:
 Longer commercials require that more time be purchased.
 Longer commercials also cost more to produce.
o
Television rates are set according to “gross rating points” (GRPs).
 One gross rating point indicates that one percent of the audience
(reach) has the opportunity to be exposed to a message one time
(frequency).
 GRPs are determined by multiplying reach by frequency.
 GRPs are usually computed on a four-week basis, with 240 GRPs
used as a standard for measurement.
o
Local television stations set their own rates and discounts which are
known to change frequently.

Radio
o
Radio promotion costs are determined in large part by audience size
and composition, time availability, and commercial lengths.
o
Production costs, though generally far less than for television, can still
vary widely.
o
Commercial radio time is divided into dayparts (e.g., morning drive
time, evening drive time, daytime, etc.).
o
Radio stations, on the average, offer the largest discounts of any
media vehicles.
o
Radio stations offer less costly, run-of-schedule (ROS) air time which
allows the radio programmer to run the ad whenever it fits into the
schedule.
o
Most stations try to sell time in weekly package plans referred to as
total audience plans (TAPs)
Calculating Media Costs - Briefing
Determining
Costs for a
Medium
(cont’d)

Internet
o
Internet advertising is extremely popular, trailing only newspapers
and television in terms of money spent.
o
One method used to determine online advertising cost is cost-perthousand, also known as cost-per-mile (CPM).
 Advertisers pay a certain amount for each lot of one thousand
“impressions” of their ads that will appear on the publisher’s web
site.
o
Another popular way to calculate the cost of Internet advertising is
cost-per-click (CPC).
 Advertisers pay a certain amount for each “click” that they receive
from the publisher or search portal.
o
In general, Internet advertising costs vary based on the:
 Creative type (e.g., text-only, image-only, multimedia, etc.)
 Size (e.g., banner, leaderboard, skyscraper, etc.)
 Placement
 Delivery
o
E-mail advertising is often quite cost-effective due to low distribution
costs and potentially high reach.

Out-of-home media
o
Out-of-home media consist of outdoor and transit media.
o
Outdoor advertising rates are mainly determined by audience size,
which is determined by the ad’s visibility, its location, and the
population of the area in which it is situated.
o
Outdoor advertising cost is also influenced by the size of the space,
length of time for which the space is purchased, sign illumination, and
any production costs.
o
Outdoor ad space comes in the form of:
 Painted bulletins
 Poster panels (billboards)
 Spectaculars
 Transit advertisements

Direct mail
o
Costs for direct mail differ from costs of other media because they are
a product of some entirely different factors, including:
 Postage and delivery rates
 Production costs
 Mailing list costs
 Labor costs
o
Total costs for direct mail can vary significantly and at times be quite
high.
Calculating Media Costs - Briefing
Calculating
Media Costs
Formulas Used
to Calculate
Relative Cost
Media costs can be viewed in several ways. Most businesspeople want to know
absolute as well as relative media costs to satisfy their need for information.

Absolute cost
o
Answers the question, “What is the total expenditure for an ad or
series of ads?”
o
Is equal to the cost of production incurred by the advertiser, if any,
plus the cost for time or space purchased
 The cost of promotional media time or space can be easily
determined by consulting rate cards, Standard Rate and Data
Service (SRDS) directories, etc.

Relative cost
o
Is based on cost per thousand (CPM) [commonly used by print and
Internet media] or cost per rating point (CPRP) [used by broadcast
and outdoor media]
o
Is used to determine to which one media vehicle is more efficient/cost
effective than another
o
Involves completing the following steps:
 Gather rate information and audience size estimates.
 “Plug in” to appropriate formulas and calculate.
 Interpret and compare costs across media vehicle options.

Cost per thousand (CPM) = (Cost of the ad × 1,000) ÷ Target audience

Cost per GRP = Budget ÷ Number of GRPs