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How Target CPM in Google AdExchange
Pricing Rules works [real test]

What is Target CPM in AdX? Is Target CPM more effective than a regular hard floor? Should I enable Target CPM for all of my AdX Pricing Rules?
This article will help you answer all of these questions and more.

On December 3rd Google released Target CPM feature for Google AdExchange Pricing Rules out of beta. Traditionally, AdX Pricing Rules are hard price floors. Therefore, an advertiser's bid must be higher than a floor to win the impression. However, when Target CPM is enabled for a pricing rule, Google can adjust your floor price to match more bids.

"Floor prices on individual bid requests can be either higher or lower than the target CPM you indicate. Average CPM for your inventory, however, is equal to or higher than the target CPM you specify."

So should you turn on Target CPM for all your Pricing Rules?
Frankly, we expected Target CPM to influence publisher's AdX revenue and/or Fill Rate. If Google adjusts your floor, Target CPM might generate more AdX revenue by increasing the floor for auctions when the winning bid is significantly higher than the floor value in your Pricing Rule. Alternatively, the feature might help when you apply more "aggressive" pricing strategy by lowering your price floor to keep a decent Fill Rate.

We conducted a two-week-long A/B test to see how Target CPM influences AdX performance. We set the same floor for two identical AdX Pricing Rules - one Pricing Rule used the new Target CPM feature and the other didn't. To run a fair test, we used the same targeting for both Pricing Rules and were splitting the traffic evenly between them. The floor price stayed the same for the whole duration of the test.

Results
Both Pricing Rules participated in the test demonstrated almost identical results in terms of Ad Request CPM, eCPM, and AdX Fill Rate. The difference in performance is less than 1%.
Our conclusion
Our test showed that Target CPM alone didn't increase the publisher's AdX revenue. We assume that, as the name implies, Target CPM adjusts floors to keep your eCPM on the same level, not to generate additional revenue. The feature, most likely, uses the difference between current eCPM and your floor to adjust the value for future auctions. For instance, if closing prices for previous auctions were higher than your floor by $0.20 on average, Target CPM would be able to lower your floor by $0.20 for the next auctions to keep your CPM on the same level.

Additionally, Target CPM doesn't solve the "what should be my floor?" and "when should I update my floors?" challenges. Publishers still need to manually analyze their bid flow and CPMs, identify an optimal floor for a particular period of time, and update all Pricing Rules every day.

In order to increase AdX and overall programmatic revenue, consider implementing a dynamic pricing technology like Roxot Revenue Lift. It automatically finds and sets optimal prices for the publisher's inventory to protect its value on the programmatic open market where constant human control is impossible. Dynamic inventory pricing is a proven way to increase programmatic ad revenue and save time on managing Pricing Rules.