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You Are Losing up to 70 Percent of Your Media-Buying Budget Hidden fees and charges are making holes in your advertising budget. Is there a way to avoid that?

By Ivan Guzenko

entrepreneur daily

Opinions expressed by Entrepreneur contributors are their own.

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Marketing encompasses countless channels, activities and resources. In the long run, matching each to a return on investment and determining if any of them produce sales becomes a huge burden. As a result, many businesses go on a fruitless search for fair and transparent marketing solutions.

Related: A New Way to Examine and Tackle Mobile Ad Fraud

Initially, a brand enters a market swarming with opportunities, which results in great uncertainty. In such circumstances, mimicking the marketing model of prominent businesses appears to be the most realistic approach. Trying to outperform competitors and win the brand awareness crown, brands disperse their efforts across channels, exhausting marketing funds and failing to reach their audience.

Fees, charges and transparency issues

On average, businesses spend promotional funds on inefficient marketing channels, wasting fortunes on social network campaigns, freestyle email and content marketing activities that run without a robust strategy.

The more intermediaries the chain has, the more a business can expect to pay in commissions. Before an ad reaches a user, it is processed by an endless number of intermediaries: media agencies, demand-side platforms (DSPs), data management platforms (DMPs), ad exchanges, ad networks or supply side platforms (SSPs), etc. The number of intermediaries required to serve an ad campaign means that businesses must pay charges, fees and hidden costs on both the demand and supply sides.

When the Guardian bought programmatic ads on its own platform, the newspaper found it received only 30 pence for every pound it spent. That means 70 percent of ad spending goed to advertising networks, resulting in a negative ROI for the ad buyer.

Lack of transparency, inflated prices, hidden commissions, and unfair budget distribution between participants is not new in the ad tech industry. Still, lack of transparency is what many companies want to resolve.

Related: Clicks Are Not the Only Online Marketing Metric and They May Not Even Be the Best

Who gets the money?

Advertising industry experts find it nearly impossible to understand how funds are allocated, while the small-business owner is locked out from that information. Commissions are calculated individually and can depend on countless factors. Finding out how this is done is nearly impossible. Even when fragments of such information reach the demand or the supply side, businesses cannot verify or validate them.

Concerned with this problem, the Interactive Advertising Bureau (IAB) has launched a fee transparency calculator, with which marketers can evaluate the expected eCPM percent of media fees and flat fees, which facilitates decision-making for those who must choose between providers. According to the IAB, publishers receive only 45 percent of payments from programmatic technologies.

The commissions that DSPs take can vary significantly, reaching as high as 50 percent or as low as 5 percent. Industry experts point out that, with such a range, the average number may be somewhere around 20 percent.

A National Association of Advertisers survey has produced interesting findings. Ad tech vendors take almost half of every dollar that goes to an ad campaign. In some cases, this sum is divided between the programmatic vendor and the media agency. Sometimes this sum only goes to the agency. The remaining 50 percent is transferred to the publisher.

So, when a business buys ad inventory with $10 CPM, it receives only two dollars' worth of CPM. While the system says the business pays for 1,000 impressions, there is no way for the business to find out how the system distributes money among links.

Related: How Bots Steal Your Online Advertising Budget

Finding the right solution

All these problems require open cooperation between collaborators. Only crystal-clear transparency of all business processes and procedures can guarantee that businesses get the promotion they pay for. The advertising market might be stagnant, but it's not dead, as recent transformations leave much to hope for.

In-house marketing. Big brands like Sprint and Netflix are shifting to in-house marketing solutions. In fact, 74 percent of brands site two reasons for the change: insufficient transparency and that third-party service providers do not provide enough independent performance measuring tools.

If intermediaries and third parties consume half the budget, cutting them off automatically helps save this half. With an in-house approach, the business puts all marketing technologies and resources under its own roof and takes total control over all advertising expenditures and marketing channels.

Previously considered as a costly and complicated solution available only to big brands, it is now possible for small companies to use in-house marketing solutions to nourish their own marketing. Small enterprises are also able to implement them internally, as many pioneering decisions can scale and adjust to businesses of various sizes. Today, the cost of installing in-house technology is a small percent of the pool of media costs that brands must handle on a regular basis.

Related: How to Make Sure You're Spending Your Money on the Right Digital Ads for Your Business

Blockchain-based platforms. A lot has been said about blockchain changing the advertising environment once and for all. Today, blockchain is not only the core of Bitcoin cryptocurrency, it is also the base for building safe, secure and transparent advertising platforms.

The decentralized ledger is fraud-resistant. Its backbone registers all actions and transactions from multiple computers, making it impossible to modify or erase them. Also, chain participants can access the ledger and keep transparent data always at hand, completely solving the problem of transparency.

The first platforms have already been developed and tested, but for them to be launched on the mass market they also need a robust legislation framework, which is currently being developed globally.

Transparency has always been the greatest plague of the advertising industry. But, ever-changing reality dictates new game rules, with which brands can finally start to get greater clarity on how their money is spent. So far, the transparency of all processes and financial indicators is an aim that businesses can achieve by implementing innovative solutions. Brands should be brave enough to embrace the new opportunities coming their way, take full responsibility for their marketing outcomes and become technologically independent, in order to thrive and develop under all possible circumstances.

Ivan Guzenko

CEO of SmartyAds

Ivan Guzenko is an ad tech visionary, a blockchain enthusiast, and the CEO and co-founder of SmartyAds. Now Guzenko is actively consulting startups and mature companies on the adoption of the latest digital advertising techniques.

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