Explore what target CPM, how it’s different from manual CPM, and how it supports publishers in managing and optimizing advertising revenue.

Floor price is a critical tool for digital publishers across all ad formats as it ensures that buyers cannot win auctions by bidding below the “fixed floor” in the standard auction model.

However, the practice of setting a fixed floor price without figuring market factors may lead to lower ad fill rates and decreased eCPMs, prompting publishers to struggle with how to optimize the sale of their ad space.

Recognizing this issue, the Target CPM feature has been introduced in Google Ad Manager.

What is Target CPM?

Target CPM stands for target cost per mille, which is a floor price mechanism that  helps maintain the eCPM within  the desired range and automatically adjusts the floor price higher or lower to avoid missing out and attract more bids.

In an individual auction, the floor price may not match the target CPM, and the average CPM may even be greater than or equal to the targeted CPM.

If the definition is still vague to you, let’s make a familiar comparison. The fluctuation of supply and demand in stock can cause the floor price to fluctuate slightly. Coming back to Google Ad Manager, when multiple parties compete for the same inventory, the target CPM will automatically increase as it recognizes more bids coming from buyers.

How does Target CPM work?

In the target CPM model, bidding below a fixed floor price still gives buyers a chance to win the auction and display their ads, unlike the standard floor price model. This mechanism results in some impressions being sold at a lower price than the fixed rate, thereby balancing ad fill rates and overall CPM.

The main goal of target CPM is always to optimize the fill rate by adjusting the floor price up or down with each fluctuation. If demand increases, the inventory will automatically increase the floor price to take advantage of buyer interest. On the other hand, during periods of low demand, the floor price will also be automatically reduced to increase the fill rate of the inventory.

All these automatic adjustments are based on real-time data with the aim of maximizing revenue for publishers’ inventory.

Here is an example of how Google's target CPM works:

Query 1: Buyer A bids $5.10, Buyer B bids $5.05
Query 2: Buyer C bids $4.90, Buyer D bids $4.80

Scenario A: Setting floor price at $5.0 
Only Buyer A in Query 1 is filled with the eCPM: $5.10 and Revenue: $5.10

Scenario B: Setting target CPM at $5.0
Both Query 1 (at transaction price $5.10) and Query 2 (at transaction price $4.90) are filled
eCPM: $5.00 (-5%)
Revenue: $10.0 (+95%)

The result from the example above demonstrates that although the average CPM may decrease slightly, the publisher’s revenue has almost doubled after setting the target CPM instead of using fixed floor price as usual.

How to set up Target CPM in Google Ad Manager?

Now that we have taken a deep dive into the mechanics of target CPM, so that we have a greater understanding of it, let’s look at how to set it up in Google Ad Manager.

Step 1: Begin by logging in your Google Ad Manager account.

Step 2: Navigate to the Pricing Rules section

Once logged in, go to “Inventory” in the left bar, then “Ad Exchange rules,” and finally “Pricing rules”.

Step 3: Create a New Pricing Rule

Click on “Add new pricing rule”, provide a name for your rule and set its priority.

Step 4: Choose the inventory types

Display, mobile apps, in-stream videos, and games are your options where this pricing rule will be applied.

Step 5: Set the Floor Price

Here, you can choose either a fixed floor price or Target CPM. 

Step 6: Save Your Rule

Don’t forget to click “Save” to apply the Target CPM rule to your selected inventory.
Note: Don’t forget that you’ve disabled the “Everyone and all sizes” setting. This helps you to be able to control your pricing rules, especially when managing multiple ad sizes and formats. “Everyone and all sizes” feature allows you to specify exactly which inventory you will apply the target CPM to.

How to optimize Google Target CPM?

In case you haven’t optimized your target CPM ever, you can give it a try with the help of the A/B testing feature to see whether target CPM is suitable for your overall advertising strategy or for certain placements and ad units or not.

Here are the detailed steps on how you can experiment with target CPM in Google Ad Manager:

Step 1: Go to the Opportunities section

After logging into your Google Ad Manager account and accessing the Optimization in the left bar, click on Opportunities to proceed with setting up your experiment.

Step 2:  Choose the Opportunity type

Select the Opportunity type Enable target CPM on unified pricing rules in the View Opportunities section. 

Step 3: Set up the experiment

To begin setting up, click on the Experiment button and give your experiment a specific name. Don’t forget to specify the experiment duration with Start Date and End Date. 

Step 4: Allocate traffic percentage.

Selecting the impressions percentage that you want to assign to this experiment will help you control the impact of the experiment on your overall ad delivery.

Step 5: Start the experiment.

After confirming all the settings, click on Start Experiment to launch your target CPM experiment.

After completing your experiment, Google provides you with a detailed performance analysis. Don’t overlook these reports as they will provide you with additional insights not only for this test but also for other ad units afterward.

In case you don’t have the demand to use this feature, you need to manually disable it in Google Ad Manager.

Manual vs Target CPM: What are the Differences?

While target CPM offers many benefits, the truth is not every publisher needs it due to the diversity from their goals or inventories. Let’s refer to the following table to see the typical differences between the two pricing strategies on Google.

	Target CPM	Manual CPM
Definition	Adjusts the floor price dynamically to the incoming bids in order to get the target CPM	Requires fixed floor price for every advertiser
Control	Based on market fluctuations, the actual bid may be lower than the floor price	Only buyers bidding above the floor price have the opportunity to win
Flexibility	More flexibility for the price strategy	Less flexibility for the price strategy
Optimization	Optimizing profit through diversity in bid acceptance	May not optimize fill rate
Management	Requires additional setup and continuous monitoring	No additional setup required and easy to monitor
Experiment	Features A/B testing to provide insights	Must change the floor price if testing is needed

After understanding and being able to distinguish the fundamental differences between target CPM and manual CPM, you should allow experimentation to take place and conclude which strategy is suitable for your website.

Conclusion

In essence, target CPM is designed to help publishers alleviate concerns about fill rate and ensure stable advertising revenue. This tool reduces the need for constant floor price updates when the buying rate is not guaranteed. 

However, it is important to understand that this is not an absolutely perfect and optimal solution for all websites or ad spaces, as revenue can vary depending on factors such as location, ad size, geography, demand and so on. Therefore, testing is crucial before deciding to implement target CPM.

Frequently Asked Questions

1. What is Google CPM?

CPM stands for cost per mille, which is a metric used to calculate the total advertising cost for every thousand impressions.

2. How is the target CPM on Google calculated?

To determine it, divide the total number of impressions by 1000 and then multiply by the CPM.

3. Is CPM a trustworthy KPI?

This metric can be considered a KPI but is not applicable to all digital advertising campaigns. This is due to the fact that it is often used for campaigns focused on brand awareness, whereas if your goal is user actions such as conversions or clicks, you may consider using other metrics like CPC (Cost Per Click) or CPA (Cost Per Acquisition).

4. Is High CPM considered good or bad?

There are several factors to consider when determining whether a high CPM is beneficial. One of these points is the conversion rate of your audience. If you have a high CPM and a high conversion rate, it is regarded as a positive outcome. Conversely, in case your conversion rate is low, you may need to reconsider your strategy.

5. Is CPM and CPV the same metric?

The simple answer is NO. In terms of definition, CPM stands for cost per 1000 impressions, while CPV is cost per visit. As metrics for evaluating the cost of displaying advertisements, CPM is typically used in campaigns aimed at brand awareness. On the other hand, CPV is only applicable to the number of pop-ups displayed and video ads shown under a single view.