Gordon Woolf's Blog

How to work out what to charge for ads

Magazines provide a fascinating problem for anyone interesting in the mathematics of costing production. That's because there are so many variables.

Think of this: you plan a new magazine and you follow the usual practice of giving discounts for larger advertisements. Or maybe you work it out the other way: $500 for a full page, $260 for a half, $150 for a quarter, $80 for an eighth-page. Now you reckon that most of your ads will be small sizes, but then in come the orders for full pages and someone asking what's your discount for a double page spread (a "truck" they may call it). Instead of celebrating you suddenly realize that instead of getting upwards of $650 a page, you are giving discounts below $500.

That truck is driving straight through all your cost estimates, accompanied by a dozen Humvees. You may save a little on the time of putting one ad on a page instead of placing 6 or 8 little ones, but you may also find that the advertisers or their agents are ultra critical on proofs and the quality of the final job. Then you realize that those full page advertisers placed orders for 3 or 6 or even 12 months and your revenue is disappearing fast. Your costs may be going down a little, but they'll still want to keep changing their copy.

Fortunately there is a calculator around to help. The Adrates calculator is not completely free - it comes as a free download with copies of How to Start and Produce a Magazine or Newsletter and is an Excel spreadsheet that lets you do all those what-of calculations before you start telling people what your rates are (or helps you work out what they will have to become if you already have a publication).

Enter your suggested full page rate and the percentage extra you will charge for smaller ads and the discount you will give for series ads. Guess the percentages you may get in series bookings (you can play around with all these figures as much as you like) and the spreadsheet will give you a guide to what your rate card might look like.

Then, and this is the clever part, it will tell you, based on what percentage of pages you intend to devote to ads, how many pages of ads you will need. Then you can enter all kinds of combinations of the sizes they might be. If you go over the total it will tell you and it will give a cumulative total as you enter the numbers of ads.

Finally it gives you the total income at full rates, and then, the really important figure: based on your previously entered proportions of repeat ads, it gives your likely revenue per issue. And that is the figure which may come as a shock.

Of course you can then work out what happens if you get an extra full page. Sure, the revenue will shoot up but there is the calculation this spreadsheet does not do for you: what effect does it have on your printing and other production costs (especially if it takes you into the next postage category and you have a lot of mail subscribers).

This isn't a magic solution, but it will help with calculations that every magazine and newsletter publisher has to do at some stage, even if it is on the back of an envelope.

The book is available from Worsley Press or from Amazon, at US$26.95 and there's a lot more help than just this spreadsheet.

But first, have a look at the Adrates file (Download Adrates) which shows how the spreadsheet works.

 

Planning for success

Any would be publisher is usually exhorted on the various discussion lists to "do a business plan".

I've sometimes joined that exhortation but when I was writing Success in Store: How to Start or Buy a Retail Business, Enjoy Running It and Make Money, I told my co-author that I've never had a business plan.

He then took me through how I'd started a couple of businesses, and justified his own "always have a business plan" position. He claimed I'd had quite a detailed plan in each instance -- it was just that I had not written it down! So, as a writer, the one thing I've never written down, is my plan for success. However, more of those businesses have gone according to plan than those which have not.

You will need a formal plan if you are going to borrow money. However, even then a business plan can be drawn up on the back of an envelope.

A nice restaurant I used to go to had paper tablecloths and marker pens in a glass on every table because the owner said her original business plan was drawn up over a meal in another restaurant and she had to appeal to the manager of that restaurant for some paper to write it down.

It also helps to include, in advance, what you will consider to be failure. ("I will have failed if I do not publish two books in the first six months, sell 1000 copies or not be within a few hundred dollars of breaking even in the second six months").

Too many people struggle on because they attempt to justify the changed cicumstances.

There's no reason why a "business" plan can't be that within 12 months "I will have published Uncle Joe's memoir, sold 20 copies and he'd added me to his will".

You could probably carry that one in your head.

In search of funding

Maybe it's a little out of the normal run of production problems, but I had a reader recently point out that one of the major production problems for a small newspaper can be to have the funds to go on producing the paper.

That's a good point. I have come across newspapers that have received arts council and local education grants for things like running an arts page or a page (and sometimes a lot more) for one or more local schools -- especially if they involve the students doing most of the preparation work (I've been paid a few times to go along to schools and explain how a newspaper is put together).

I've also seen schools and other organisations divert funds they used to produce a newsletter to a newspaper which agrees to run a regular column.

However, in general, appeals for "support" don't seem to work in the long term -- much better is to encourage people to show their support by placing paid classifieds whenever they have something to say, something to sell, or someone to thank.

For a local publication, or one which serves a very specialised field where a number of people agree that they would lose substantially (either economically or socially) if the publication ceased, there could be an argument for a "Friends of ..." organisation that maybe gives some benefit such as discounts of some kind that don't cost the publisher anything.

You can also chase local politicians for inclusion on government advertising budgets, though this money seems to be getting much harder to get.

I have to admit that this isn't covered in any great depth in my book How to Start and Produce a Magazine or Newsletter although that does cover  much about setting ad rates, selling ads and considering the general economics of publishing.

Why is debt supposed to be good?

Why is debt supposed to be good? I had an accounts program for my business once which would warn me, whenever I did a "health check" on the business, that my level of debt in comparison to capital was "below an acceptable ratio". I did not take any action at that time, but have since noticed that the software company is now out of business. Debt is not necessarily bad, but there does seem to have been an assumption leading up to the present crisis that companies should have debt to optimise their profits. Now many of those businesses which had followed that trend are scurrying to replace debt with capital. I had four mailings from companies last week suggesting how I could benefit from buying additional shares in various lots from $500 to $10,000. They seem to have discovered that it takes only 100 small shareholders with $10,000 each to give them a million, 10,000 to give them a billion. One even suggested that I might like to reinvest dividends in new shares -- something I used to do but which most companies had stopped offering, presumably feeling that all those little transactions were not worth bothering with when they could go out to world investment banks and funds to borrow. I have to disappoint them. I started slowly converting from shares to cash around two years ago and am not planning to go back just yet. However, I am still reinvesting dividends with those companies where I have kept shares following the basic principle that Warren Buffett espoused of buying shares only if you'd want to buy the company if only you had enough money. But what of the smaller business? Basic principles remain as they always have. If you can buy something and then sell it for more and cover the total of your costs, including your own living costs, then you have a good business. Whether it is a market stall, an agency, a magazine, a newspaper or whatever, then a good business will survive. Some may have to adapt, but, for example, I continue to puzzle over why people will spend hundreds of dollars on a coffee maker for their own kitchen when for that they can buy hundreds of expertly made espressos and cappuccinos from friendly locals in their own high street. When families do not have the funds or security to go on an overseas holiday, they may well spend more on a coffee and cake and the occasional meal at a local bistro. And a business which starts now, offering goods and services which people want, will be ready to show its expertise when the good times return. That is, provided the business does not borrow beyond its means. Debt is for use when money is needed short term, such as for a new commercial coffee machine which will immediately boost daily turnover, or for other equipment or even premises which will continue to have a value greater than the amount borrowed. Just as a home mortgage remains a good debt provided you can meet the repayments and know that at worst you can sell up and have enough for the rental deposit on an alternative place to live, then debt is good for business if it is kept within similar bounds and you still make a profit after paying the interest charges. I mention in one of my books the colleague who sold his car replacing it with a new one on lease in order to get cash back to buy a piece of equipment. And that was someone who had worked in the finance and banking industry... who obviously did not know the difference between good and bad debt.