Auction pressure and why your CPM is probably lower than it could be
One of the core principals we use to increase ad revenue for the publishers we work with is to get advertisers to pay closer to their top bid. Advertising through networks like AdSense is settled by auction and just like a real-life auction room the final price is often quite different to what the buyer is prepared to pay. Unfortunately in the online world the auction is stacked in favour of the buyer and it is usually a case of the buyer getting a bargain, rather than them paying over the odds.
Why don’t buyers pay the bid price?
Ad sales are driven by “second price” auctions, where the final price is fixed by the price that the highest losing bidder would have paid. In a straight second-price auction between an advertiser willing to pay $1 CPM and one willing to pay $10 CPM the highest bidder will win, but only pay $1.01.
In practice it gets more complex. With AdSense auctions for instance the prices are fixed by an effective CPM which also factors in how likely that ad is to be clicked. The result is very much the same though, with advertisers paying below their top price for most impressions.
Pricing floors to the rescue?
One way to force advertisers to pay closer to their maximum bid is to set a minimum price for your inventory. Publishers working with AdX will set floor prices for many different combinations of criteria and manage those to push advertisers to pay closer to the full value for each impression (if this sounds interesting please do get in touch and talk to us about using AdX).
For those using a network, like AdSense, that doesn’t have pricing floors an ad server provides similar functionality. Using DFP Small Business publishers can set AdSense as dynamic allocation and use price priority lines to act as a floor.
Floors are useful, but only provide a partial solution. They also require constant attention and can be costly if they are not managed well. You also need to consider how best to monetise those blocked impressions as there is little point in raising your CPM by 25% if your fill rate drops to 50%.
The market led solution – auction pressure
Where ad auctions do differ from their real-life equivalents is with the speed and frequency that they run. A site running 5 units per page and achieving just a million page impressions per month is running close to 7,000 auctions an hour. To achieve good rates that site needs to ensure that they have at least 2 high paying bidders for every impression they serve, no matter what geography, technology, behaviour and context that impression relates to.
The notion of a second-price auction can mislead publishers into thinking that they only need two advertisers. We hear this frequently when looking at the number of advertisers some publishers block. Each advertiser has their own targeting criteria and spending limits. To ensure that you have two high-paying advertisers for every impression you need to attract as many advertiser as you can.
Practical ways to increase upwards auction pressure
- Limit category blocking. Blocking an entire category of advertisers can remove auction pressure for a large number of impressions.
- Opt into additional networks and technologies. These bring more advertisers to the table.
- Don’t be misled into blocking segments that don’t appear to earn. Ads don’t have to directly generate you money to increase upwards pressure if they are forcing the winning bidder to pay more.
- Use a variety of ad formats and types
- Ensure that your inventory can be targeted through AdWords
- If you are using an ad server introduce additional demand sources (or even have house ads running at price priority promoting your most valuable content)
- If you are not using an ad server consider using DFP
The easy answer
Increasing upwards auction pressure is just one of the techniques that we use to earn more ad revenue for our publishers. If you would like the benefit of this and other approaches but without the hassle, why not get in contact and talk to us about how we can help?