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Understanding Programmatic: Choosing your Price Floor

While it’s very important for publishers to understand how header bidding works, it’s equally as important that they understand how to make it work for them.

In our previous posts, we did our best to simplify the process of programmatic advertising.

We first covered the traditional process of waterfalling, then moved through the innovation of header bidding.

If you’ve yet to read those posts, we suggest that you start there before reading any further.

After reading our previous posts, you might be thinking, “all of this talk of price floors… But how do I know what my price floor should actually be?”

That’s an important question to keep in mind. Header bidding is a very innovative process, but publishers can only truly maximize their return if the process is implemented correctly.



Know what you’re worth…

Setting your price floor is one of the most difficult parts of implementing header bidding.

It can be difficult because you’re essentially deciding your own worth – which is not a comment on existentialism, but a comment on ad inventory.

The best way to start is to observe your peers (remember… Ad inventory…).

Study the publishers most closely related to you. What are they charging for their ad space?

It may seem obvious, but price floors vary quite a bit across different audience demographics, so it’s important to use competitor numbers to stay within realistic parameters.

It’s also important to use competitor numbers so that you avoid undervaluing your ad inventory, and to know if you can increase your price floor.

Determining your price floor means determining the value of your audience.

As advertisers continue to seek more targted audiences, the ad space in front of said audiences becomes more valuable. This means that publishers with niche, hyper-targeted audiences can charge a premium for their ad inventory.

So then, how do you use that competitor data to come up with the optimal price floor?

Consider the following example for a Regional News Website:

First, see what type of ads are being sold by your competitors. For each individual type of ad, observe the internet-wide average CPM, and compare it to your direct competitor’s average CPM.

Your answer lies in the difference between those two numbers.

If you’re the News website in the example above, it’s easy to see that the others in your demographic are undervaluing their ad inventory, with average CPMs that are much lower than the internet-wide CPMs for the same ad units.

Let’s get a little more specific…

For a 300 x 600 ad unit, the internet-wide average CPM is $1.95. For Local News, however, the average CPM sits well below that, at $1.36. That’s a difference of $0.59.

In this case, Local News networks are leaving extra returns on the table because they’re undervaluing the audience they can offer advertisers.

In studying this, however, you now know to raise your price floor to meet the value of your regional, niche audience, which can increase your CPMs, and weed out unsavory advertisers.



Size Does Not Equal Value

For publishers, it’s important to never think of your site as “small.”

A small audience does not mean your inventory loses value. Think of a small audience as simply being more specific.

Brands greatly value regional and niche audiences – like local news websites – because, for many brands, more specific audiences are better, safer places to advertise.

In the end, setting your price floor is always still a bit of a guessing game. And even though there may be a certain number you’re looking for, it’s always most important to optimize your price floor to create the most returns over time.

Price floors can always be adjusted as well, so it’s not the end of the world if you end up miscalculating your price at some point along the way.

It’s most important for publishers to understand the process of header bidding and how to maximize it’s returns.

For the full overview of the programmatic process, check out our complete Guide to Understanding Programmatic.