A price floor is defined as the lowest possible price any particular commodity can be sold for. From an ad-tech perspective the price floor dictates the minimum cost at which space for digital advertisements can be sold through an ad-exchange or supply side platform.
A price floor is set by publishers to ensure their inventory makes at least a certain amount of revenue.
Hard Floors Vs Soft Floors
Hard floor is a floor where the minimum price set is the lowest a publisher would accept for selling his inventory and all bids below this price are immediately rejected
Soft floor is a floor where bids below the minimum price level (but around it) are still considered. This is so because the publisher would accept a slightly lower bid rather than getting no yield for his inventory.
How does Floor Price Work?
Historically, in a waterfall system if an ad network cannot meet the price floor, the next ad network gets an opportunity to serve the impression. Now with the advent of real-time exchanges and header bidding those networks that bid below the minimum price levels are rejected and only those that bid the minimum or above are considered in the purchase or auction.
The price floor should be adjusted to garner maximum revenue from the perspective of publishers but in reality many are too busy with other matters such as content creation to keep adjusting it. Most publishers will change the floor price with their respective partners on a periodic basis such as weekly or monthly.
To help this need there are companies now that specialise in optimisation of the price floor by using data to gauge how much an advertiser or network would pay for the impression of a publisher and accordingly set the floor. Prices on a weekday might differ from a weekend, prices at night might differ from the day so an automated process constantly changing the floor to (at least in theory) derive maximum yield is what is implemented.