Building a financial model for advertising inventory sales

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The particular financial model we are looking at in this article within our series is inventory-based advertising.

The advertising model consists of both standard marketing services efforts, such as internal and third-party inventory sales; and also company listings, which for our example business we are calling Storefronts.

In terms of banner inventory variables, I do not break it down by ad unit, only by the average value of the inventory. This methodology behind this calculation can be as simple, or as exacting as you wish. In-short, I tend to go with a calculation based on CPM (cost per mille) value of the units displayed on the page, divided by the number of units. The average is simply the resulting number.

The variables for this section of the page as therefore as follows:

  • AVERAGE VALUE OF AD (IN-HOUSE)
  • AVERAGE VALUE OF AD (3RD PARTY)
  • IN-HOUSE INVENTORY SOLD
  • 3RD PARTY INVENTORY SOLD

Now we move on to the variables we will use for our directory listing ‘Storefront’ product. As the product itself is license driven and sold (with an auto-renew) over a 12 month period, I simplify the model by stating the monthly cost of the license. Also for simplicity I use a monthly retention rate.

Both of these simplifications actually add flexibility to the model and sales methodology.

The variables used for this section are:

  • MONTHLY COST
  • MONTHLY RETENTION RATE
  • SALES PER PERSON (PER MONTH)

I then break the Storefront sales effort down by month… and include the following key variables which will enable the business to return results in the sheet:

  • STOREFRONT SALES HEADCOUNT
  • ROLLING STOREFRONTS

I then move back to the inventory sales effort and note traffic, which are inputted from the ‘Marketing Plan’ page of the workbook. The results shown here are:

  • UNIQUE BROWSERS
  • VISITS
  • PAGE VIEWS
  • PAGE VIEWS PER VISIT
  • BANNER IMPRESSIONS

From this traffic we then calculate the monthly revenue totals for the entire ‘Advertising Sales’ effort, broken down as follows:

RESULTING MONTHLY REVENUE

  • IN-HOUSE INVENTORY SALES
  • THIRD-PARTY INVENTORY SALES
  • STOREFRONT SALES (RECOGNISED)
  • MONTHLY TOTAL

ANNUAL REVENUE

  • IN-HOUSE INVENTORY SALES
  • THIRD-PARTY INVENTORY SALES
  • STOREFRONT SALES
  • TOTAL REVENUE

Reminder: with the ‘Advertising Sales’ numbers a lag and platform development time needs to be built into the equation.

Finally, as part of this series, subscribers can gain access to the entire (boilerplate) Excel workbook we are using for our example portal business.

Now we have completed the inventory-based Advertising Sales Model worksheet, lets move on to the next model in this series, which is the Marketing model and plan. This particular sheet outlines the numbers and results, based on industry average numbers for our particular vertical(s):

  • Outline and Results page
  • Monthly Travel
  • Individual Subscriptions Model
  • Corporate Subscriptions Model
  • Report Sales Model
  • Advertising Sales Model
  • Marketing Plan and Model
  • Contributor Payment Model
  • The HR, Assorted Costs and Budget Detail Pages
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