As a publisher, you put a lot of time and resources into making your site attractive to advertisers. You create top-notch content, optimize your site performance, and work on producing a positive user experience that keeps your audience coming back for more. But attracting advertisers is just the first step. To truly maximize your advertising revenue, it’s crucial to implement strategies to make sure you’re getting fair prices for your ad space.
That’s where price floor optimization can help.
What Is a Floor Price?
A floor price is the minimum CPM (cost per thousand impressions) price set by a publisher for their ad impressions. They make sure that a publisher’s ad inventory isn’t sold for less than a certain amount, guaranteeing a minimum revenue per ad impression for the publisher. Floor prices help publishers protect their ad revenue and ensure that their ad space is not undervalued.
How Does a Floor Price Work?
First let’s establish the basics. When an ad space becomes available, it goes to a real-time auction where advertisers place bids to secure the slot. These auctions ensure that publishers can capitalize on competitive bidding to get the best possible rates for their ad space. These bids are typically based on how valuable the advertiser finds the ad placement for reaching their target audience.
If the bids are below the publisher’s floor price, they get rejected. The ad space either goes unsold or is filled by another ad that meets the minimum price.
If the bids meet or exceed the publisher’s floor price, the highest bid wins and the ad is displayed on the publisher’s site. The publisher gets at least the minimum price they set.
For a more detailed look into how these automated bids work, check out our post on programmatic advertising.
What is optimized floor pricing?
Optimized floor pricing is a smart approach to ad inventory pricing, ensuring every ad spot is sold at the best possible price. This technique uses advanced data analytics to tap into market trends.
By leveraging these insights, publishers can set the minimum acceptable price, avoiding the undervaluation of premium placements while taking advantage of current demand.
This careful approach balances revenue maximization with competitive positioning, ensuring advertisers get the most value, leading to win-win scenarios.
Optimized floor pricing isn't just about revenue; it's about embracing dynamic pricing strategies. These strategies adapt to fluctuations in supply and demand, making it essential for any modern digital advertising operation. For publishers, it's an exciting opportunity to refine revenue models, boost profitability, and pave the way for unprecedented growth.
Manual (Static) vs Automated (Dynamic) Floor Prices
There are two main types of floor pricing models: Static pricing and Dynamic pricing.
Static Floors
A static floor price is a minimum CPM that a publisher sets manually. They’re fairly easy to set up and maintain, since they don’t need complex algorithms or rely on real-time data. However, since it’s manually managed, it doesn’t automatically adjust with market changes. This means you’ll need to keep an eye on it regularly and make adjustments to make sure you’re not losing out on potential revenue.
Dynamic Floors
As the name suggests, a dynamic floor price is a minimum CPM set by a publisher using algorithms and real-time analytics. It automatically adjusts to match changing market conditions.
Dynamic floors are generally considered more effective than static floors because they respond to market fluctuations automatically, making sure that your ad inventory is always optimized to meet the current demand. It’s by no means a set-and-forget strategy, but it’s an easier strategy to scale since it requires much less time and effort from publishers and their demand partners.
Why Is a Floor Price Important?
Floor prices offer different benefits to publishers that go beyond just increasing revenue.
- Increased Revenue: By setting a floor price, publishers make sure they receive at least a minimum amount for their ad space, helping to maximize their revenue.
- Prevents Bid Shading: Bid shading is an algorithm that DSPs and ad exchanges use to help advertisers pay the lowest possible price for ad inventories. A floor price helps prevent bid shading by setting a minimum price and encouraging competitive bidding.
- Better Quality Ads: Setting a price floor can attract higher-quality advertisers who are willing to pay more for your ad inventory, resulting in better ad content and improved user experience. By this logic, advertisers with low-quality or fraudulent ads are less likely to pay for your premium ad space.
- Improves Fill Rate: Dynamic floors can also boost your ad fill rate by accepting bids that static pricing might reject. This is especially helpful during low-demand periods, ensuring your ad space gets filled instead of going unsold.
Overall, floor prices not only help boost revenue but lead to better quality of ads and more efficient use of your ad inventory.
5 Tips For Floor Price Optimization
Whether you choose static, dynamic, or a combination of both strategies, here are some key factors you should consider to make sure your floor price strategy is as effective as possible.
- Avoid Setting a Floor That’s Too High: It can be tempting to set a high floor price, but this can backfire. Setting a high floor price can boost your CPM, but it might also lower your fill rate. Finding a balance between maximizing revenue and maintaining a healthy fill rate is key.
- Analyze Your Historical Data: If you want to know the value of your ad inventory, check your historical data. Review past performance metrics like CPM, ad fill rate, and bid data to get a sense of average bids and market trends. This will help you set a floor price that accurately reflects the value of your ad inventory.
- Consider Market Fluctuations: The online advertising market is always changing, so staying updated and adaptable is key if you want to maximize your revenue. There are numerous factors that affect market fluctuations, like the day of the week, seasons, events, consumer behavior, and industry trends. Keeping an eye on these factors helps you set floor prices that match the current market conditions.
- Monitor Your Fill Rate: Your fill rate is a good indicator of your price floor’s effectiveness. For example, if your fill rate is low, it’s likely that your floor price is too high, causing advertisers to look elsewhere. Regularly monitoring and adjusting your floor price based on your fill rate can help you strike the right balance, allowing you to attract advertisers and maximize your earnings at the same time.
- Segment Your Inventory: Since your audience is likely diverse, you can segment your ad inventory to get the best value from each group. Consider factors such as country, device, and interest. For example, if your audience is spread across multiple countries, you can set different floor prices based on the typical CPMs in each region. This way, you can adjust pricing to match the value of each segment and make the most of your ad space.
The Takeaway
Price floors are a powerful tool publishers can use to optimize their ad inventory and ad revenue. With a bit of experimentation and careful maintenance, you can find the right balance between maximizing revenue and maintaining a healthy fill rate.
If you need help getting started or improving your floor price management, don’t hesitate to reach out. Our Ad Ops team is here to help you every step of the way.
Elysée is Snigel's Marketing Executive. She keeps our team up-to-date by researching and writing about the latest AdTech trends and creates our publisher newsletter. With a background in academia, Ely is passionate about making complex industry topics clear and engaging for readers.
