Price Floor Optimizations

Mark Dixon Ad Monetization

You’ve probably heard about price floors before. Since Google Ad Manager switched to the first-price auction model, there seems to be less conversation about price floor optimization. Price floors (or floor prices) have become an important component publishers can use to strategize their website monetization. In the first-price auction, demand partners try to optimize their budgets to get impressions at the lowest possible price. For publishers looking to make sure they’re getting a fair value for their inventory, they can achieve this by careful price floor management. 

What is price floor?

Price floor is an enforced value you set on your inventory so that buyers cannot pay below that amount. It’s a fixed CPM price that acts as a threshold from which only bids higher than the threshold are permitted to participate in the auction. In other words, a price floor prevents demand partners from buying ad impressions at prices below a certain amount set by the publisher or Ad Ops partner.

If publishers don’t use price floors, their ad inventory’s value can easily fluctuate and decrease over time. Buyers might use a tactic called bid shading to purchase ad impressions at the lowest possible price. A price floor may also be useful in helping prevent low-quality ads from appearing on the publisher’s site which can also affect user experience.

Types of price floors

With Google’s shift to first-price auctions, they introduced a new pricing feature — the Unified Pricing Rule. Its goal is to set a common pricing rule to Ad Exchange, Exchange Bidding, Network, Bulk, and Price Priority line items. Simply put, all the indirect demand will have the same pricing rules, hence the name “unified pricing.” 

In Google Ad Manager, publishers have access to two types of price floors:

  • Set floor prices (fixed CPM): Lowest winning bid must be no less than the floor price.
  • Set target CPMs (default): Target CPM dynamically adjusts the floor price on matching inventory to maximize yield.

Understanding your inventory

You can’t measure pricing rules for an immediate positive impact in an A/B test like you could previously, since they will no longer influence the clearing price of that particular auction. Instead, floors should be used to help publishers set fair prices for segments of their inventory and protect against buy-side optimizations that might drive the publisher’s revenue down over time.

Revisiting what we previously discussed in Everything You Need to Know About First Price Auctions about understanding your inventory — in order to set effective floors, publishers first need to understand what makes their inventory valuable. 

Understand your users – First-party data is going to be even more important with third-party cookies increasingly under scrutiny and falling within privacy restrictions at the browser level (like those already implemented within Safari and now a major focus for Chrome’s upcoming changes). If publishers can’t determine the value of their audiences, they can be sure the walled gardens of ad giants like Google, Facebook, and Amazon will.

Understand your content – With browser updates impacting future reliance on cookies, contextual targeting likely becomes more prominent. As a publisher, what is it about the content you create that engages users and provides value to brands that are looking to advertise alongside it?

Understand bid behaviour Publishers can leverage bid-level data from their exchange partners to understand the historical market price for additional segments of inventory, such as geo, ad unit, viewability, device type, and date/time. As with any flooring strategy, if the floors are set too high and buyers find better value elsewhere, publishers may lose out on campaign spend entirely. If the floors are set too low, advertisers may be able to keep lowering their CPMs and the publishers’ revenue will decline over time. If a publisher applies floors too broadly across their inventory, one or both of those scenarios may be occurring within more granular targeting on a buyer’s campaigns.

At Sortable, we’re big fans of changes that help clean up and shape up an overly-complicated industry. But we also understand that publishers can often get stuck dealing with the impact of sweeping industry-wide changes, especially when they threaten their bottom line. That’s why we want to help provide publishers with the tools they need to maximize revenue from ads.

Conclusion

vIf you have any questions about price floors, reach out to our team. Sortable is committed to making Ad Ops easier for publishers like you. We can help you determine the best platform and ad types for your monetization needs.