Why do ad revenues drop in January?

Publishers firing up their computers to check earnings early in January often get a nasty surprise. Many niches experience lower CPMs and traffic in January than at any other time of the year and this can come as a shock after the highs of the December holiday season.

Note: This article was originally posted on 9th January 2017 and has been regularly updated to ensure we have provided the most accurate information.

Understanding the problem

With any drop in revenue, the starting point is to understand the problem. Your revenue can drop due to one of three things happening:

Drop in ad requests

Sudden drops in ad requests around the start of January usually relate to traffic changes and this is easily checked against analytics. If traffic has dropped and that drop reflects changes in previous years your main option is to wait it out. Do check the other causes as well though, as traffic drops are often accompanied by other problems. Year on year traffic comparisons in Google Analytics are good first checks.

Drop in fill rate

Fill rates can drop in January if floors aren’t adjusted to reflect seasonal buying patterns. Whilst you might be able to fill impressions with a $5 floor in December, you might not be receiving the bids to support that same rate in January. If that happens your fill rate will drop and you need to decide whether to accept that, add additional demand or lower your floor prices.

This issue should only impact publishers imposing floor prices through Ad Exchange, their other networks of via the AdSense ad-balance tool. If none of these are used, then fill rate should be maintained automatically as the price drops. Speaking of which…

Drop in CPMs

Even those sites who maintain the number of impressions served can experience significant January revenue drops as CPM rates drop thanks to lower advertiser bids. CPMs are generally lower at the start of every quarter but can be particularly harsh in January.

Of the three factors, this is the issue impacting most publisher in January. Publishers in niches with high first-quarter demand, such as fitness or travel are generally protected, but most publishers do see a decline in rates as advertiser spending drops.

Why advertisers spend less in January

The rate publishers receive for each impression is governed by auction. More advertiser making strong bids supports high rates, but any drop in that “auction pressure” leads to rates being suppressed.

The start of January sees two patterns coming together: The Post-Holiday slump and the quarterly buying cycle.

The post-holiday slump

Ad spend in Western markets peaks in November/December as advertisers try to capitalise on the high conversion rates during the spending spree surrounding Thanksgiving, Black Friday and Christmas. Budgets are ramped up then cut suddenly again as the spending frenzy ends.

Come January, the budgets are often far more conservative to balance the spend of the previous quarter as well as to reflect the decreased sales opportunity of the new season. Fewer bids and lower bids conspire to cause many CPMs to tumble.

The quarterly buying cycle

January 1st isn’t just the start of a new year, but of course, a new quarter too and ad spend follows a quarterly cycle throughout the year. Advertising budgets are frequently set quarterly and campaigns end at the end of the quarter, reducing demand come the first of the month. Throughout the year the first day of a quarter is often plainly visible looking at CPM drops resulting from this buying cycle. See this article for more about quarterly buying cycles.

What to do if your ad revenue drops in January

It’s worth saying that these patterns don’t affect every publisher, but they are widespread. With many publishers experiencing the “double-tap” of lower traffic and lower CPMs, the revenue hit can be substantial. Whilst the seasonal cycles are outside of publishers control, there are a few recommended steps if you are hit by such a drop.

1. Don’t panic!
   Big, scary drops in January aren’t nice, but they aren’t unusual either. This is a common pattern. It doesn’t necessarily mean anything is broken or that you need to roll out drastic changes (that might interfere with recovery).
2. Understand what has dropped
   OK, revenue has dropped, but what caused that?  Traffic? Impressions? Fill? CPMs? “Revenue is down” is never an answer, but is a prompt to ask what caused it.
3. Check whether the drop is normal for your site
   Graph traffic, ad revenue and CPMs for previous years. Do any of these normally drop or is this something new? If you see regular drops that recover you might need to wait it out. If this isn’t a usual pattern then you might need to dig further to find other causes.
4. Use the opportunity to make and test changes
   Lower revenue can make it a good time to make changes with lower risk. Try new placements or new demand. Roll out some new content that might reverse the traffic patterns, run ad-serving and content experiments.

Would you benefit from having better support on issues like this?
OKO not only help web publishers earn more, but give expert support with a wide range of issues, such as seasonality, and helping publishers understand these issues. Find out more here.