Tuesday, February 24, 2015

How developers should think about CPM, CPC and CPI with regards to advertising.

CPM - Cost Per Mille (1000 impressions)
CPC - Cost Per Click
CPI - Cost Per Install

These are the three main ways that in app advertising is bought and sold.
I find that developers are often confused about the differences so let me try and explain.

I'm thinking particularly about adverts for apps here. Specifically as part of a user acquisition strategy.

Let's start by looking at the "user acquisition funnel".

It's a simple concept.
Lots of people see the ad. Some of them click on the advert and then some of them install the app.

With this in mind there are three ways we can get more installs of an app.
1. Get more people to see the advert.
2. Get more people who see the advert to click on it.
3. Get more people who go to the store to install it.

These three ways of increasing installs relate to the three ways of paying for advertising. - Don't be surprised, this isn't a coincidence.

If I want people to see an advert I can pay (CPM) for the advert to be shown. I can pay more for the advert to be seen by more people. I can also, potentially, pay more for the adverts to be displayed to people who are more likely to click on it. In this scenario the person selling the advertising space just needs to provide the space to show the advert. How successful the app is in getting people to click on it is my responsibility as it will come down to how the advert looks and what it says.

If I pay just for the people who actually click on my adverts (CPC) I will expect to pay a bit more but there's a change in responsibility and the relationship between myself and the person selling the advert space. We now both have an interest in the advert being clicked on. For the ad seller the clicking on the advert is the end in itself. For me it's just a means to an end. We want different things from the advert. If I'm creating the advert and it's not as successful as it could be the ad seller is missing out on revenue. If they create the advert it will likely be optimised for getting people to click on it regardless of whether they have an ultimate interest in installing the app or not.

For many people, paying on a CPI basis is appealing as it removes the guesswork and responsibility from running adverts. You don't have to pay for adverts that no-one clicks on, or that are clicked on but don't lead to people installing the app. In this situation you're paying for results and not just things that should lead to the ultimate result you want. As with paying on a CPC there is a conflict in terms of who created the adverts. In that they are being paid for each install that is driven by an advert (the real value of the advert in a CPI scenario is as a way of tracking where the install came from) the incentive to produce the best advert should be on them. After all, the better the advert the more installs the app will get and the more money they'll earn. Of course, it's not just about the advert, how the app appears in the store will also affect if people install the app. Do you let them produce everything in the store listing too? What about all branding, icons and screenshots? Good screenshots that clearly show the value of the app and how good it is can help persuade people viewing the store listing to actually install the app. Taken to its extreme this may mean them wanting to redesign the app so that more people will install it. While this would be good for the app it's not something any ad company is offering. Yes, some will let you advertise on a CPI basis but it's not always the ideal situation it may seem.

All three ways of paying (or charging) for ads each work to serve the ultimate aim of getting more people to install, and hopefully use, an app. Just be aware what you're actually paying for and where the responsibility for success lies.

Advertising your app can be a challenging task but that isn't a reason not to do it though.


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