How to Maximize Net Profit on Your WL Ad Exchange Using the Dynamic Margin Feature
- Reasons why we added this new functionality to your system
- So, what is dynamic margin?
- Where can you find dynamic margin?
- How is dynamic margin supposed to work?
- How the revenue is formed on your platform
- How the price is formed for PMP deals
- To wrap it up
You probably remember that recently we’ve delivered a very massive upgrade of WLS SSP and Ad Exchange 2.2. In the blog post devoted to this upgrade, we tried to deliver the essence of the new features that we equipped your system with. We listed the new functionality and described how each is supposed to ease the operation of your system and what benefits you will receive with them. However, this was not everything that we wanted to tell you. In fact, we’d love to focus more on the most important functionality and for this, we are going to write several feature-focused articles. On today’s agenda is the dynamic margin feature. Buckle up, we are going to tell you everything about it - how it works, why it is a good idea to use it, and where you can find it. Additionally, in this post, we will remind you of how revenue is formed in your system.
Reasons why we added this new functionality to your system
The main reason why we decided to add this feature to your WL Ad Exchange is that it was the most frequent new feature request that we received from our partners during the past couple of months. We always carefully collect and review all the feedback that we receive from our partners and analyze it to determine what new features we can implement to elevate your experience with our technology and make it ultimately efficient.
We are grateful for your timely feedback as it helps us to pinpoint the most correct area for improvement and system capacity strengthening. Additionally, we try to pay attention to the overall level of your satisfaction so that we could simultaneously improve both the technology and the service level.
So, what is dynamic margin?
Dynamic margin is the advantageous proprietary functionality that helps WL Ad Exchange owners to significantly boost the profits that they generate with their platform over time.
The smart inbuilt algorithm helps you to define the margin by specifying the percentage of the possible profit that the supplier should receive. This way, you can allocate the forecasted price share for your supplier and increase your profit from every bid. As a result, you get a transparent picture of revenue formation and boost revenues with ease.
Where can you find dynamic margin?
Go to the dashboard of your system, then go to the settings of the SSP endpoint and find a dynamic margin toggle. Also, you can find the toggle in the user settings (so that you can apply the function to the specific publisher).
How is dynamic margin supposed to work?
So, as we already discovered, a dynamic margin toggle is created to help you maximize the revenue that you receive on your platform. As soon as you find it in your SSP endpoint, you can configure and activate it.
Note that when you enter the SSP endpoint settings, you can activate the toggle for a specific SSP. In order to apply it to the specific publisher, you need to activate the dynamic margin toggle in the user settings.
Here is how it works: by adding the % to the dynamic margin field, you indicate the percentage from the original bid price that will be sent to the SSP/publisher.
What results you get if you don’t use dynamic margin. Let’s imagine that your system received a request from the SSP 1 and sent it to the DSP 1. After this DSP 1 replied with a bid response with the price of $7.
If there is no dynamic margin set, the bid price your platform will send to the SSP 1 will equal the DSP bid price ($7) minus all markups.
What results you get if you use dynamic margin. If there is a dynamic margin set, the bid price that your system will send to the SSP 1 will equal $5.
The higher % is - the higher bid price will be sent to the supplier. The lower % is - the higher revenue will be received by your platform.
Now let’s review scenarios for the first-price and the second-price auctions.
|Bid floor sent to DSP||$6.35|
|DSP bid price||$7|
|DSP win price||$4|
|Bid price that originally should be sent to publisher/SSP||$4.41|
|Bid price that will be sent to publisher/SSP after dynamic margin is applied||$4.0451|
|Bid floor sent to DSP||$6.35|
|DSP bid price||$7|
|DSP win price||$6.5|
|Bid price that originally should be sent to publisher/SSP||$4.095|
|Bid price that will be sent to publisher/SSP after dynamic margin is applied||$4.01045|
How the revenue is formed on your platform
In order to better understand the logic of revenue formation, let’s review markups and where you can apply them to get the most out of your platform. Also, let’s pinpoint how the revenue is formed in private marketplace auctions (PMP).
The platform’s profit is generated based on the markups you apply. The markups can be applied to each publisher and the DSP.
Case: Sending bid requests to the DSP
- Floor price in the bid request from the publisher → $1
- Publisher markup → 10%
- DSP markup → 20%
So, here’s how it goes:
- The system receives a bidfloor of $1 in the request from the publisher (or the bidfloor of $1 is set in the placement settings).
- The system analyzes the value of publisher markup and DSP markup and forms the final bidfloor that we will send to the DSP.
Therefore, the request will go to the DSP with the following bidfloor:
- bidfloor in the bid request to the DSP = publisher request floor price / (1-publisher markup) / (1-DSP markup)
- example = $1 / (1 -0,1) / (1-0,2)= $1,3889
Case: Defining a winner
- DSP#1 bids with $4
- DSP#2 bids with $5
DSP works by the First-price auction:
DSP#2 is the winner as it sent the bid response with the highest price. The winning price is equal to the highest bid price ($5).
DSP works by the Second-price auction:
DSP#2 is the winner as it sent the bid response with the highest price. The winning price is equal to the second highest bid price ($4) +$0,01 (according to the second-price auction rules).
Case: Payout and returning the bid price to the publisher
Once we have the final price DSP won with and should pay to us (in our example it’s either $4,01 or $5), we can send a bid response with our bid price to the publisher.
It will be calculated by the following formula:
- bid price to be sent in the bid response to publisher = DSP win price *(1-DSP markup)*(1-publisher markup)
- example = $5*(1 -0,1)*(1-0,2) = $3,6.
How the price is formed for PMP deals
- Floor price in the Publisher deal → $3
- Publisher markup → 10%
- DSP endpoint markup → 20%
Thus, the request will be sent to the DSP with the following bidfloor:
- bidfloor in the bid request to the DSP = Publisher Deal Floor price / (1 - Publisher markup) / (1 - DSP markup)
- example = $3 / (1 - 0,1) / (1 - 0,2)= $4,16666667
Note, that the Bid Floor either sent in the bid request from a publisher or set in the placement settings is greater than the Floor price in the Deal settings, this request won’t be sent through a Deal.
You can check what exactly bidfloor has been sent through the Deal on the SSP by one of the following ways:
- Choose Attribute “Publisher Deals” and Metric “AVG. DSP Bid Floor” in the report.
- Insert Deal Hash in the field “Search by content” in the Request & Response Sample Logger, open the request and check the bidfloor sent to the DSP in the pmp object.
To wrap it up
With our new feature, which is called dynamic margin, you can quickly define the margin by specifying the percentage of the possible profit that the supplier should receive. This way, you will be able to allocate the forecasted price share for your supplier and increase your profit from every bid. We hope that this information was useful and that it also clearly illustrated the mechanism of revenue formation in your WL Ad Exchange. Keep your eyes peeled for the new articles as we have a lot of useful things to share with you.
Still have some questions left? Let’s talk and discuss them. Fill out the form, and we’ll get back to you shortly.
Anastasia-Nikita Bansal, Director of Enterprise Solutions of SmartyAds