Understanding Five Different Ad Pricing Models

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So you have an engaged audience and a fantastic content strategy that your readers love — that’s great. But maybe you’re a little perplexed on how to build a profitable advertising business for your newsletter.

Not all newsletters use the same models to sell ads. Some sell based on the size of their audience or the number of readers who opened the newsletter. Others sell based on the number of clicks. Others take a cut of sales, and many sell based on a set rate regardless of what kind of engagement the ad gets.

In this guide, I’ll demystify these various pricing strategies in ad sales, look at the pros and cons of which, and help you think through which is most suitable for your newsletter.

Flat Fee

This is the pricing model that newsletters like Morning Brew relied on, and I think it’s the model most advantageous to the majority of newsletter operators. One reason is because it’s simple — you’re selling an ad for a fixed price, regardless of what happens with the newsletter containing the ad. If that newsletter gets a lot of opens and clicks or just a few, your advertiser pays a pre-set rate.

How do you calculate what flat fee you should charge? It’s usually worked backwards from a reasonable cost per mille, or CPM — the cost per 1,000 views of your newsletter. Some newsletters calculate CPM based on the total size of your email list, but I prefer to calculate it based on the average number of readers who open your newsletter. (To make this even more clear, some newsletters even label this metric as CPM/opens, not CPM, in their sponsorship resources.) Advertisers want to know that their ads are being seen, so pricing around opens — not emails sent — is what I recommend to my clients.

Most newsletters tend to command a $20-$40 CPM. But valuable niche audiences can command higher rates. For instance:

• Local newsletters can often charge $50-100 CPMs.
• B2B newsletters can charge $75-150 CPMs.
• Newsletters aimed at readers in hard-to-reach audiences, like government or sales, can sometimes charge up to $200 CPMs.

Want to figure out what rates make sense for your type of newsletter? I’ve written a more detailed breakdown of CPMs by newsletter format here.

😊 Pros

• This is the least risky ad format — you won’t lose money even if that day’s newsletter underperforms.
• It’s a simple model to implement for newsletters both big and small.
• You have full control over how much you get paid.
• It offers predictable revenue, and you can send the invoice for the ad before the ad runs in your newsletter.

🤮 Cons

• Selling flat fee sponsorships is simply a bigger/more risky ask from the brand, versus a Cost-per-click (or other performance) deal where the brand only pays if they see the results they want. It’s hard to sell.
• You may be able to make more money via another ad model.

CPM (Cost Per Mille)

CPM is a model where advertisers pay a fixed price per 1,000 views of the ad. To calculate CPM — and again, I recommend doing this based on the number of readers opened — you’d:

• Divide the number of readers who opened the newsletter by 1,000.
• Then multiply that number by your CPM.

This is still a favorable model for publishers. You’re not relying on clicks or conversions to get paid — you’re relying on opens, which are much more predictable. But it’s a rare model to use when it comes to newsletters that directly negotiate with their sponsors. Part of the reason is because of how payment works.

Let’s say you have a newsletter with 10,000 readers, an average open rate of 50%, and a $50 CPM. On an average day, you’d get 5,000 readers to open. To get the value of the ad, you’d divide that 5,000 by 1,000, and then multiply by your CPM, leaving you with an ad worth $250. (That’s probably what you’d set your flat fee at.)

But what if your open rate is a little bit lower than usual — 40% instead of 50%? In that case, you’d be charging only $200 for the same ad in the same newsletter. Of course, if your newsletter does better than expected, you may be able to charge more for that ad spot than you would with a flat fee model.

In my experience, advertisers prefer to pay a flat fee instead of a CPM, even though it’s technically less favorable to them. (Why would they prefer the flat fee? Simple — there’s more risk of overpaying). 

😊 Pros

• You could charge more than expected because your open rate was higher than expected.

🤮 Cons

• You may have to charge less than expected because your open rate was below average.
• You’ll have to closely track open rate in each newsletter.
• You won’t be able to send an invoice until after the ad runs.

CPC (Cost Per Click)

CPC is where the advertiser pays per tracked click. 

This is probably the most common model used by many ad networks. It’s what’s known as a performance ad — you get paid if your newsletter leads to traffic for the advertiser.

The biggest problem with CPC is that you’re not getting paid for the full positive effect of your ad. The buying journey isn’t always as simple as “view, click, buy.” For me personally, I’ll see an ad, get interested, maybe click, maybe not, forget about it for a week, then Google it on my phone and buy. If your readers are like me, they may end up buying the advertised product because of the ad in your newsletter — but since they didn’t click on the initial ad, you won’t get paid for it.

The CPC payouts mostly range between $1 and $2 per click across most of the mainstream ad networks. In my opinion, $1 is a bad deal, $1-2 is OK, $2-3 is decent, and $3+ can be very lucrative for a newsletter.

If you use the CPC model, you also need to be aware of bot clicks. Many large organizations use anti-spam software that clicks on links in newsletters to make sure their users aren’t clicking through to malicious sites. That can cause significant click inflation — one email platform, Omeda, reported that 63% of clicks in emails came from bots. If you report to an advertiser that your newsletter saw 2,000 clicks, but their site data only showed 200 clicks from your newsletter, that can cause issues when it comes time for them to pay your invoice.

😊 Pros

• It’s fairly simple to understand and easy to implement.
• If your newsletter is good at driving clicks, you could make more money with this model compared to a flat fee or CPM (although this is rare).

🤮 Cons

• The payout per click is often too low.
• Bot clicks can cause real problems for tracking. 
• You’re not getting paid for the “halo effect” — how much the ad helps boost a brand’s awareness and reputation.

CPL (Cost Per Lead)

This is where the advertiser pays per lead, which is generally defined as a potential customer who’s taken an action that indicates they’re likely to make a purchase.

This can vary wildly depending on who the advertiser is. Common examples of leads include: 

• A new account.
• A booked call.
• A positive reply.
• A user filling out their contact details on a form.

CPL is quite a rare pricing model, mainly because for most verticals, there aren’t many tools that make it easy to execute. Newsletters are actually one of the few exceptions — platforms like Sparkloop will pay you if you convert your readers into subscribers for other newsletters.

But there is lots of upside with the CPL model. I think selling leads could be an extremely lucrative business for specific types of newsletter operators. For instance, I worked with a real estate newsletter that sold leads to lenders and interior designers. As big-ticket products, they were happy to pay hundreds of dollars per lead. Had this newsletter charged via another ad model, they would have made far less money from their ads.

The key to success in selling leads is focusing on high-ticket products and setting up the right systems to get the reader in front of the advertisers — and track it all so you can get paid. That’s often much easier said than done.

😊 Pros

• If you’ve got advertisers who are willing to pay hundreds (or thousands) of dollars per lead, there could be significant revenue upside for your newsletter.

🤮 Cons

• It’s more favorable to the advertiser than the newsletter operator. You don’t get paid for the awareness you’re driving to their brand — just clicks.
• You may not be able to track how many leads you drove for the advertiser, which means you’re reliant on them to give you accurate numbers in order to get paid.

Affiliate 

The affiliate model is where the advertiser only pays once there’s been a tracked new customer from the advertisement. The affiliate payout depends on the advertiser. Some pay a one-time fee for a new customer; others pay out a percentage of revenue for as long as the customer remains a customer. 

Simply put, I think affiliate is the worst ad model for publishers. There’s no immediate payment for the ad — you only get paid when the advertiser gets a new customer from your newsletter. Not only are you relying on someone else’s sales process, you may not get paid for months — if at all. (Also, tracking links don’t always work, which means your newsletter may lead to a sale but the advertiser may not know it.) There’s some upside, especially for an affiliate that pays out revenue in perpetuity, but you’re holding all the risk.

In my view, affiliate marketing can be a nice secondary revenue stream for a newsletter, but it should never be your primary revenue stream or pricing format. If you run affiliates in your primary ad slot, you do so at your own peril.

😊 Pros

• If you find some great-fit affiliate partners who offer recurring payouts, it can make a good ancillary revenue stream.

🤮 Cons

• You run the real risk of getting paid nothing for your ad.
• If you do get paid, you may not get paid for months, and you’re relying on someone else’s sales funnel.
• Tracking links don’t always work perfectly.

Which ad model makes sense for your newsletter?

I try to encourage clients to prioritize the flat rate model — it’s the one that offers the least risk, predictability and optimizes revenue. But there are absolutely cases where it may make sense to try another model. Maybe you’ve got a secondary ad slot that would work well for an affiliate or a cost-per-lead type of advertiser. Maybe you’re still fairly small, and the easy-to-implement cost-per-click model would be great. 

You don’t need to use the same model for every type of advertiser. It’s up to you to find the right fit that gives you the chance to maximize revenue while delivering value for your audience and your advertiser.

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