Lesson Overview + Resources:
In this lesson, we will walk you through the basics of building a price floor strategy, including:
- What exactly are price floors?
- Why building a cohesive price floor strategy is important
Here are additional resources pertaining to the lesson above:
Read the Transcript:
Let’s dig into why a price flooring strategy is such an important part of total ad yield.
Let’s begin with the basics.
First: What is a price floor?
In digital advertising, a price floor is a setting that defines the lowest fixed CPM rate that you are willing to accept for an ad impression. It will block the sale of impressions for any amount lower than the fixed value.
And second: What is a target CPM?
The Target CPM setting in Google Ad Manager is an alternative way to set a price floor. Instead of setting a fixed floor, the Target CPM setting will allow flexibility around your Target CPM to help maximize fill while keeping the majority of inventory sold above the Target CPM.
The relationship between fill rate and CPM plays an important role in your overall ad revenue. The age-old laws of supply and demand essentially dictate that the less there is of something (or, the lower the supply), the greater the demand will be for that thing.
Raising your price floor will lower your fill rate and reduce the supply of your inventory, making it more valuable. This drives higher CPMs. The balance comes in finding the perfect price floor that maximizes the combination of fill rate and CPM.
As your CPM increases, your fill rate will decrease. If your price floor is too high, you won’t sell enough impressions. If your price floor is too low, you’ll sell a lot of impressions, but your average CPM won’t be very large. Ultimately it creates a relationship like the one shown in the graphic on your screen, for your ad revenue.
There will be a sweet spot right where your total ad revenue is maximized. The goal of a price flooring strategy is to find that sweet spot for many different combinations of circumstances, maximizing total ad revenue in each set of circumstances.