What Should I Consider While Setting Floor Prices?

Reading time: 5 minutes

Believe it or not, price floor[3] optimization is still an important factor in programmatic advertising[1]. Price floors — which simply means floor prices — are especially crucial for publishers as it allows them to better strategize their website monetization.

In a first-price auction, demand partners typically try to optimize their ad spend budgets to pick up ad impressions at the lowest price possible. Of course, publishers on the supply side are trying to maximize their ad revenue by first making sure they’re receiving fair value bids for their ad inventories. 

Hence the importance of price floor management.

In this article, we’re going to talk about all things floor pricing — including what you should take into consideration when setting your floor prices. 

Keep reading to learn more.

What Are Floor Prices?

The price floor is the imposed value a publisher[8] sets on their inventory[9]. In other words, it’s the minimum amount required for bids which prevents advertisers from bidding and paying below said minimum amount. This guarantees a fixed cost per thousand (CPM[2]) rate which creates the threshold from which only the bids that are higher than the threshold are allowed to even participate in the auction.

A publisher’s floor prices are a necessary component in preventing their demand partners from buying up their ad inventories at super low prices. Without floor prices in place, the value of a publisher’s ad inventory[4] can severely decrease over time. In some instances, the buyers (advertisers) will use a technique called bid shading to purchase these ad impressions at the cheapest possible price. 

By implementing a price floor, publishers can prevent bid shading which also prevents low-quality ads from being delivered and served on their websites. This is incredibly important as we’re constantly beaten over the head with the gravity of the user experience and how bad ads and poor delivery can severely affect it which ultimately affects your bottom line.

Therefore, no publisher should go without a price floor in programmatic advertising. Ever.

What Should I Consider When Setting Floor Prices?

The goal here is to set fair prices for your inventory while protecting yourself from demand-side optimizations that could negatively impact your revenue over time. Unfortunately, you can’t measure the pricing rules for floor price setting using an A/B test as you would with other metrics.

That’s why you must first get a firm understanding of your own ad inventory, which means understanding three essential things: Your users, your own content, and bid behavior (which involves leveraging the right data for consistency and viewability[5].

Having said that, here are the main parameters to consider when setting your floor prices for the best results:

Country

Understanding where the bulk of your user traffic is coming from is arguably the most important parameter for setting your floor price. 

If you’re a publisher that receives traffic from both the US and India, you would need to start imposing higher floor prices on your US inventory since US advertisers are willing and able to pay more. In countries like India, CPMs can be as low as $0.01, which means you likely won’t be able to get a premium price for your ad inventory.

That’s where your price floor comes into play as it will keep your ad inventory from falling to low CPM territory. 

Device

Devices help determine the value of a product simply because they can be tracked via geolocation. If the advertiser[6] in question is a local restaurant or store, and the user in question is within the vicinity of their establishment (granted their mobile device location is turned on), they’ll likely pay a higher premium for mobile device ad space. 

Of course, for non-local businesses, like B2B and SaaS companies, purchase decisions aren’t typically made on mobile devices. Therefore, a higher premium would be paid for desktop ad space.

Don’t worry, it’s not as confusing as it may seem — but that’s why it’s essential to understand your own website content and where your traffic is coming from!

Day Parting

Put simply, day parting is a pay-per-click (PPC) advertising tactic for scheduling ads at certain times of the day. Day parting is useful for most retailers who run their businesses for certain hours during the day.

If your inventory includes the type of ads that allow for personalized targeting[10] for these businesses, then it makes sense to raise your floor price during their business hours to optimize your ad revenue. 

Seasonality

It’s a well-known fact that seasonality directly affects publishers and their CPMs. Once again, it’s important to become familiar with your own website content and typical ad content that would at least make sense contextually. 

In other words, you need to become aligned with seasonal trends. For example, if your website content revolves around outdoor sports in the northeast of the US, then you know people like to participate in ocean activities in the summer and snow-related activities in the winter. This will tell you when to increase your floor prices and for what type of ad inventory.

Of course, if you don’t run a niche site that revolves around seasonality, you can still experiment with increasing your floor prices around the holidays as it’s a time when advertisers are usually willing to pay premium prices to make sales.

Audience

If you leverage your audience segments for more specific ad targeting[7], then you can take advantage of multiple types of advertisers. For example, during football season and especially the Super Bowl, you can increase the floor prices for your sports section. 

The same goes for any other major events, whether it be holidays, sports, politics, and so on.

Ad Size

Ad size is the easiest way to determine your floor pricing. There are a handful of specific ad unit[11] sizes that have become more universal as they work best for everyone. The key is knowing which creative[12] sizes outperform the rest, so you can set higher floor prices on those ad units.

Manual Vs Automated Floor Price Setting

Setting floor prices that hit the sweet spot takes a lot of time and effort. You have to continually monitor the bid ranges over a long period just to adjust your floor prices in increments.

This is why many publishers opt to adjust their floor pricing using Dynamic Price Floor Optimization (DFO). DFO is an automated process that determines the market demand for specific audiences at specific times to set optimal floor prices. 

Regardless of which method you choose, the most important thing to do is keep an eye on the bid range reports to ensure your floor prices are being set at the best possible threshold where most bids are being won. You also want to ensure that all impressions are being sold, which is why it’s a good idea to set up passback tags.

Either way, there is work to be done when setting floor prices to optimize your CPMs for the highest returns. As long as you make sure to consistently set floor prices versus not setting them at all, you’re already winning.

Terms
1. programmatic advertising. Programmatic advertising entails using machine learning and technology suites to buy and sell ad inventory with a data-driven process.
2. Cost Per Mille/Thousand [CPM] ( CPM ) Cost per mille, or thousand (mille = thousand in Latin). A pricing model in which advertisers pay for every 1000 impressions of their advertisement served. This is the standard basic pricing model for online advertising. See also CPC and CPA.
3. price floor. A fixed CPM rate that prevents an ad partner from serving campaigns that pay below a certain price threshold. For example, if you set your price floor to $1 your ad partner shouldn’t serve any campaigns with net CPM rates below that amount.
4. ad inventory. Ad Inventory refers to the number of ad impressions available for sale on a publisher’s website or mobile app. In other words, these are the commodities available for the advertisers to buy on the website.
5. viewability. Viewability relates to the amount of time a user saw an ad.

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