CPA vs CPM: Why you should only pay CPM for programmatic advertising

Best Practices Apr 02, 2020

Pay CPM, optimize for CPA and ROAS.

App advertising and app pricing models for programmatic marketing

Traditionally, display media has been sold at an impression level, where advertisers paid for said impressions on a cost per thousand basis, also known as CPM (technically, cost per mille, which is Latin for “thousand”). In the early days of mobile marketing, many advertisers shifted to cost per install (CPI): a model which was fraught with fraud and skewed the industry towards vanity metrics for several years.

As soon as realization dawned that there was more to growth than app store rankings, and that an install was not a user, many opted to move towards cost per action (CPA). Surely, only paying for the events that took place would remove the risk of paying for poor media from the marketer side… except it didn’t.

CPA schemes are great in theory, but attribution in the mobile space is not perfect and in the current mobile landscape, the CPM pricing model offers more transparency for app marketers.

What are the different pricing models for app marketing?

The most common pricing models for programmatic advertising are CPM, CPC, and CPA. The pricing model defines the incentives across the media purchase process. The wrong pricing model sets the wrong incentives, and therefore jeopardizes campaign performance—regardless how granular the targeting or how advanced the creative strategy may be. In order to maximize transparency and performance, app marketers should pay CPM and optimize for CPA; this post explains why.

CPA vs CPC vs CPM pricing

What is CPA? How is CPM calculated? What are the main differences between each pricing strategy? Below, you’ll find each model explained: definitions, pros, cons, and why you should only pay CPM for your mobile marketing campaigns.

CPA-priced mobile marketing campaigns

Formula for calculating CPA in programmatic advertising

CPA became increasingly popular as many media companies argued that it removed the media buying risk from the marketer side: “you only pay for actual in-app actions.”

However, as our friends at AppsFlyer highlighted in a recent post: CPA campaigns don’t protect you from ad fraud. These campaigns give a high incentive to game attribution and cannibalize organic events. Machine, a London technology company whose products and services are designed to protect app marketing budgets from fraud, explains “paying out only on a post-install conversion basis does not provide any protection for advertisers’ marketing budgets, as conversion events can be fraudulently generated as easily as the installs themselves1.”

Also, programmatic campaigns require an exploration period during which the CPA is usually high, as the machine learning algorithms well learn. After that initial phase, an efficient DSP will optimize for in-app actions thus bringing down the CPA. Say the initial cost for an in-app action is $20. After a month of performance optimization this may come down to $15, but marketers paying CPA will continue to pay $20 throughout the campaign.

The only way to reduce the risk on the advertiser side is to have an iron-clad lift-measurement tool that ensures there is incremental revenue for every ad dollar spent.

CPC-priced mobile marketing campaigns

formula for calculating CPC in programmatic advertising

When you optimize for a low CPC, publishers have the incentive to generate as many clicks as possible. These types of placements can be fraught with fraud and bots. Brand safety is always a must, but CPC should not be considered without taking fraud into account. Read more about click-related fraud schemes and how to identify them.

CPM-priced mobile marketing campaigns

formula for calculating CPM in programmatic advertising

The most effective way for marketers to protect their ad spend and ensure real transparency is to buy as close to the cost of the media as possible. This way, the incentive is set for your media partner to obtain the highest amount of available quality impressions. Ultimately, you are still competing with other advertisers at the CPM level.

Furthermore, by combining last-click attribution (LCA) with view-through attribution (VTA), app marketers can see exactly what those impressions are and how they perform. By tracking impression-level data, marketers can assess the true value of each placement and gain a better understanding of its role in driving conversions.

A CPM-priced campaign can and should have strict CPA and ROI benchmarks to ensure that the DSP is actually delivering incremental revenue.

Out of the three programmatic advertising pricing models, CPM has the most history but it’s also the most misunderstood.

The benefits of paying Dynamic CPM on programmatic advertising

More transparency 🔍

Transparency is one of the biggest advantages programmatic advertising holds over the traditional ad network model. Transparency is essential both to ensure brand safety, and to obtain performance insights. Campaign intelligence can be used for budget optimization and to fuel creative strategies.

Reduce the risk of mobile ad fraud 👮

CPC has probably the worst rep in terms of fraud, and many marketers have fallen prey to click-injection and click-spamming schemes. The fraud risk of CPA, on the other hand, is often overlooked, when in fact the incentive for fraudsters is much higher on CPA:

“While the average CPI stands at about $2.89, cost-per-action rates can be as high as $4.58 for a registration event (beginning of user journey), and up to $40 or $87 for purchase or subscription events, respectively. The potential reward for fraud, based on these numbers, is therefore significantly higher. (...) the reward for a successful infiltration beyond the installation point, going under the radar of standard fraud protection tools, would mean a highly rewarding payday from CPA events2.”

AppsFlyer calculated that in Q4 2018, the average fraudulent install resulted in an average of 0.9 in-app events, but by Q2 of 2019, this number tripled to 2.7 events for every fraudulent install, suggesting how fraudsters have shifted their focus to post-install events.

We are not saying that there is no fraud on CPM, but marketers paying CPM, optimizing for ROI, and demanding real-time transparency through VTA and continuous lift analysis are in a better position to safeguard their campaigns.

Cost-efficiency 📈

With dynamic CPM, marketers can automate bid optimization to reduce the overall advertising costs and drive higher ROI and conversions. We’ve worked with numerous advertisers to help them increase their reach, while reducing their CPA.

TL/DR

CPM, CPC and CPA comparison for programmatic advertising

Wrapping Up: Pay CPM, optimize for CPA or ROAS

By using a CPM model, marketers can pay close to the cost of the media, and optimize for the metrics that really matter. App marketers paying CPM still track CPA and ROAS. If their partner isn’t driving incremental revenue, they get cut—as simple as that.

The pricing strategy sets the incentives for all the media partners in your supply chain.

Each pricing method triggers a different incentive, and is therefore correlated with different forms of fraud. While using the right pricing strategy is not guaranteed to eliminate fraud, setting the right incentives along the media purchasing process goes a long way in improving transparency.

Unlock new growth with App User Acquisition and App Retargeting

Using a dynamic CPM model and machine learning, advertisers can unlock predictive bidding to ensure they are reaching all their key app users and optimizing spend allocation to maximize ROI.

Jampp’s Always-on Lift Measurement feature can also help you minimize the risk of fraud by increasing transparency and tracking incrementality across the entire app growth cycle. Learn more about this feature on our blog, or request a demo to see it in action 👀.

References

[1] “3 Myths of Fraudulent App Installs,” Machine, 2018.

[2] “Why CPA Campaigns Don’t Protect You From Fraud,” AppsFlyer, 2019.

Florencia Vago

Marketing Manager at Jampp. Loves long walks in the city, traveling and learning new languages.
When she’s not reading up on industry news or creating content, she’s usually talking about books...