At Adobe’s Advertising Week Think Tank event, Phil Gaughan predicted that 80% of advertising will be automated by 2020. This automation simplifies much of the complicated work around building, launching and reviewing your advertising campaigns. Marketing tools can help you fine-tune your target audience, choose when and where your ads will appear and create variations of your ads — while providing data to help you optimize your campaigns.
The goal, of course, is to ensure that your return on ad spend (RoAS) is as high as it can be. You want to know that for every dollar of your advertising budget you invest in a campaign, your brand gets the highest possible gross revenue. The success of your campaigns and the level of RoAS you receive, comes down to all those many decisions you make on each ad, some manual, some automated.
While the right targeting, messaging and imagery are essential to successful ads, these elements are only one part of the puzzle. The other side is strategy, or more specifically, the model that you use for bidding on and measuring the results of each ad or campaign. There are three main models when it comes to advertising: cost-per-thousand-impressions (CPM), pay-per-click (PPC) and cost-per-acquisition (CPA).
The Problem with Impressions and Clicks
Under the cost-per-impressions model, you pay for an ad based on the number of times that ad is displayed on a webpage that is loaded. This means you’re charged each time that ad shows up, whether or not the viewer actually sees it. Between the prevalence of ad blockers and the natural tendency of online visitors to ignore most ads, you could be investing a large percentage of your ad budget into ads that are not even viewed, let alone lead to a sale.
The Pay-Per-Click model takes things a little further, as you’ll only pay when a potential customer clicks on your ad to go to your landing page or sales page. In this case, you know at least that the ad drove traffic to your website, but even if they click and immediately leave or browse for a while and then never come back — you still invested in that click.
Both of these models fall short of being the most effective method for running advertising campaigns. CPM advertising doesn’t guarantee traffic to your website, and the PPC system doesn’t guarantee that your website traffic is comprised of paying customers. This means your RoAS is unpredictable and that unpredictability makes advertising based on impressions and clicks very expensive.
The Difference in Cost-Per-Acquisition Advertising
By contrast, the cost-per-acquisition (CPA) model focuses on your specific goals as an advertiser. You won’t pay for an ad unless it accomplishes your goal, also known as a conversion. That conversion may be the sale of a product that you are promoting, but it could also be a form completion, the download or a resource, or any other action you want potential customers to take.
With the CPA model, you have much greater control over your ad spend, as you can put in exactly the amount that you are willing to spend based on the “conversion” that you are trying to achieve. By basing your ad bids on the lifetime value of your customers (or the value of that conversion), you’ll be setting up your ad campaigns for greater levels of success where it actually counts – in achieving higher revenue.
Impressions and clicks can provide many insights that can help you better target and design your ads — but as a model for ad spend, they represent a great deal of risk. Cost-Per-Acquisition advertising lets you invest more wisely in advertising as you pay only for successful conversions.
July 3, 2018
Performance, The Winning Curve