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Price Arbitrage Vs Transparency

July 11th, 2013 by Troy Newport


Price arbitrage was again brought to the forefront when Facebook recently changed their policies to prevent the practice within their advertising network.  This practice involves ad agencies buying large chunks of web advertising inventory, and then reselling it to their clients at a premium price.  That allows the ad agency to make profit from managing their clients’ ad campaigns, and also profit off the margin.  This practice is much more common among large media companies and is legal (even though if you tried the same practice on Wall Street you’d be in federal prison.)   Recently large corporations have started asking questions about how their ad budget is being spent and have been pulling out of agencies who can’t (or won’t) be transparent about the issue.  Read more about this on AdWeek.

You may be saying to yourself, “well I’m a small company and I’m not working with those large agencies so I don’t have to worry about it.”  Unfortunately this practice happens on a different level with smaller agencies.  For example, often agencies will create a Google AdWords account for their clients and never give them access to it.  They charge a flat fee to their client which includes the ad budget and the fee the company charges to manage the campaign.  Unfortunately at the end of the day the client doesn’t really know how much of their monthly costs are going toward ad budget and how much the agency is pocketing.  Unscrupulous agencies have been known to mislead their clients on exactly where their money is going. 

To prevent this from happening to you, make sure if an agency is managing an ad campaign for you that the campaign is created in your account and your credit card is being charged directly by Google, Yahoo, Bing, Facebook, or whichever ad networks are being used.   Not only does this allow you to fully account for your ad budget, it also provides portability if you ever decide to leave that agency and work with another.  For example if an agency is managing your Google AdWords campaign and you decide to take it elsewhere, if you do can’t take your account and ad campaign to the new company they have to setup the campaign from scratch.  That means you lose all your account history and Quality Scores.  In the long run that means you are going to pay more money.

At the end of the day make sure you have control over your web properties, your accounts, and demand transparency when it comes to your ad budget and how your money is being spent.

 

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