What is a second price auction?

Second price auction is a type of auction model used in programmatic advertising. As advertisers bid for ad impressions, the highest bidder wins — but there’s a catch: instead of paying their own bid amount, the winner pays the second-highest bid amount plus one US cent. 

Consider this example involving three different advertisers:

• Advertiser A bids $2
• Advertiser B bids $1
• Advertiser C bids $2.12

Though Advertiser C is the highest bidder and wins the auction, they don’t pay their initial bid of $2.12. Instead, they pay $2.01 for the ad impression — the second-highest bid ($2 from Advertiser A) + $0.01.

When talking about second price options, it’s important to mention the bid floor.

While not mandatory, a bid floor sets a minimum amount that auction participants must meet or exceed when placing their bids. As well as ensuring better deals for publishers, this ensures transparency and integrity in the auction process, creating an environment where participants are motivated to submit bids that genuinely reflect the value they place on advertising.

How is it different from first price auction?

In a first price auction, the highest bidder wins, and they pay the exact amount they bid for the item or service. It’s a straightforward model where the winning bidder’s proposed price determines the transaction cost. 

Here’s a brief breakdown:

• Bid winner: The participant with the highest bid is declared the winner.
• Payment: The winner pays the amount they bid, so there’s a direct correlation between the bid amount and the final price.

So, in our previous example, Advertiser C will win the auction again, but this time, they’ll be paying $2.12.

In contrast, a second price auction introduces a unique pricing mechanism. The highest bidder still wins, but they don’t pay their proposed amount. The specifics look something like this:

• Bid winner: The participant with the highest bid is still the winner.
• Payment: Instead of paying their bid amount, the winner pays the amount of the second-highest bid, plus $0.01.

Which is better: First price or second price?

Each auction model has its pros and cons — let’s compare them. 

First price auction:

• Advantages: Simple and intuitive; participants pay what they’re willing to bid.
• Disadvantages: Bidders might strategically submit lower bids than their true valuation, leading to inefficient pricing; the winner might pay more than the actual value they placed on the item.

Second price auction:

• Advantages: Encourages fair bidding; participants have less incentive to manipulate their bid. Efficient pricing. 
• Disadvantages: Bidders may find it difficult to strategize due to the indirect relationship between their bid and payment.

Deciding between first price and second price auctions depends on a few things like

transparency, bidder behavior, and how much complexity you’re willing to deal with. If you prefer to keep things simple, go for the first price auction. But if you want a fair and honest bidding process, then the second price auction is the way to go.

In both cases, setting a bid floor is optional but helpful for preventing unrealistically low (or high) bids.

What are the benefits of using second price auction over first price?

Choosing a second price auction over a first price auction yields multiple advantages, such as: 

Fair, truthful bidding

The emphasis on truthful bidding in a second price auction encourages participants to bid their actual value, fostering honesty in the auction process. This contrasts with first price auctions, where bidders might strategically undervalue themselves. 

Reduces overvaluation risks

Ever heard about the winner’s curse? It refers to a situation where the winning bidder in a first price auction might end up overpaying if their bid significantly exceeds the actual value of the item. In a second price auction, the winner avoids this issue by paying the lower, second-highest bid.

Simplicity in valuation

Bidders in second price auctions don’t need to precisely estimate an item’s value to avoid overpaying; they simply bid their true value, streamlining the bidding process.

Transparency in the market

The predictability of the second price auction allows advertisers to better understand market dynamics. This insight helps them make informed decisions, avoiding inflated perspectives and enabling more competitive, data-driven practices.

Predictable costs

Predictable costs in a second price auction help bidders with budget planning. Knowing they’ll pay the second-highest bid plus a small increment provides a clear and predictable cost structure, enhancing financial planning and management.

Encourages participation

In a second price auction, participants feel more at ease and motivated to engage, knowing the outcome is determined by the second-highest bid rather than their own bid. This fosters a more dynamic and inclusive auction environment. 

Bid strategies for second price auctions

Now to the fun bit! 

Let’s delve into key bid strategies you can apply for second price auctions:

1 — True value bidding

Strategy: Participants in a second price auction are encouraged to bid their true value for an item or impression. This means placing a bid that accurately reflects the maximum amount they’re willing to pay. For instance, if you believe an impression is worth $2 to you, bid exactly $2 for an honest reflection of the impression’s value.

Why it works: Bidders can be confident they’ll pay only the second-highest bid amount, promoting honesty and transparency. This approach helps you avoid overpaying while remaining competitive. 

2 — Bid shading

Strategy: Bid shading involves adjusting bids to a level just above the expected second-highest bid. Here’s how it works: Suppose the estimated second-highest bid is $1.50. Following the bid shading approach, consider placing a bid at $1.51 to secure the auction while paying a price just above the second-highest bid (hence winning the auction).

Why it works: By shading the bid slightly below the bidder’s true value, you can balance competitiveness and cost-effectiveness. This tactic helps secure the win while paying a lower price.

3 — Dynamic bidding

Strategy: Adapt your bids dynamically based on real-time auction conditions, competitor behavior, and performance data. For example, if a sudden influx of competing bids occurs, adjust your bid upward to stay competitive and increase your chances of winning.

Why it works: Bidders continually analyze the auction landscape, adjusting bids based on factors like the number of competing bidders, historical bid patterns, and the value of the impression. This approach ensures your bids remain relevant and competitive.

4 — Bid experimentation

Strategy: Conduct bid experiments by testing different bid amounts to assess their impact on winning auctions and achieving campaign objectives. For example, make bids of $1.50, $2.00, and $2.50 to analyze which bid level consistently results in winning auctions while achieving campaign objectives.

Why it works: Bid experiments are great for understanding the optimal bid level for your goals. This data-driven approach helps you refine bidding strategies over time.

5 — Budget allocation

Strategy: Allocate your budget strategically across multiple auctions to maximize overall campaign performance. If certain auctions consistently yield better results, allocate more of your budget to those auctions to maximize returns.

Why it works: Instead of focusing solely on individual bids, consider your broader campaign budget. This involves allocating funds to auctions with higher potential returns while staying within your overall budget constraints.

6 — Competitor analysis

Strategy: Monitor and analyze competitors’ bidding behavior to gain insights into their strategies. For example, if a competitor consistently wins auctions with higher bids during peak hours, adjust your bidding strategy to remain competitive.

Why it works: Observing and understanding how competitors bid in the auction enables you to adjust your bidding strategies accordingly, ensuring a more informed and competitive approach.

7 — Auction segmentation

Strategy: Segment your bids based on different factors such as audience segments, time of day, or device types. For instance, bid higher for impressions targeted at a premium audience segment. Similarly, adjust bids based on the historical performance of certain devices.

Why it works: By tailoring bids to specific segments, you can optimize your bidding strategy for different audience behaviors and preferences, improving the efficiency of bid allocation.

8 — Bid floor optimization

Strategy: Experiment with bid floors to find the optimal minimum bid that balances competitiveness and efficiency. For example, test bid floors at $1.00, $1.25, and $1.50 to identify the minimum bid that ensures competitiveness without overpaying for impressions.

Why it works: Bid floors set the minimum acceptable bid, and optimizing this value helps strike a balance between winning auctions and controlling costs.

9 — Bid adjustments

Strategy: In your bid strategy, you make bid adjustments based on factors like audience targeting, device types, or geographic locations. Consider increasing bids for impressions from a high-value audience segment, or adjusting bids higher during peak hours to enhance visibility and competitiveness.

Why it works: By adjusting bids for specific conditions or segments, you can optimize your strategy to maximize the chances of winning auctions in scenarios where certain factors influence the value of impressions differently.

Key takeaways

• In a second price auction, the winning bidder pays a price just above the second-highest bid, creating a distinctive pricing mechanism where the highest bid doesn’t determine the final cost. 
• While not obligatory, a bid floor, setting a minimum amount participants must meet, ensures transparency and integrity in the auction. This approach encourages participants to submit truthful bids.
• The main difference between first price auction and second price auction lies in how winners determine their payment. In a first price auction, the highest bidder pays exactly their proposed amount. 
• The first price auction is straightforward but can result in inefficient pricing due to strategic bidding. In contrast, the second price auction promotes fair and honest bidding, lowering the risk of overvaluation. However, it can be challenging to strategize due to the indirect link between bid and payment.
• Second price auction offers several advantages, including promoting fair and truthful bidding. It mitigates the risk of overvaluation, simplifies the valuation process, provides predictable costs for budget planning, and encourages broad participation in the auctions.
• As a bidder, you can deploy various bid strategies to navigate second price auctions effectively. These strategies include bid shading, bid adjustments, dynamic bidding, and competitor analysis.

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What are in-stream ads? 

In-stream ads are short, snappy advertisements placed within popular social media video content. They’re timed as pre-roll, mid-roll, or post-roll (we’ll explain these terms in just a minute), ensuring your message hits users when they’re most engrossed in the content for maximum impact. 

In-stream ads go beyond just YouTube videos, seamlessly blending into content like Facebook livestreams and Instagram Stories to grab your attention as you scroll. 

Note that these ads are intentionally non-skippable for a brief period — usually 5-30 seconds. That might sound short, but with your audience so focused and primed to engage, it’s a real opportunity to make your mark.  

Types of in-stream ads

In-stream ads can be broken into the following three categories:

1 — Linear ads

The most common form of in-stream ads, linear ads disrupt the main video content. Taking up the entire video playing space, they’re called “linear” because they play sequentially with the content — similar to commercial breaks on traditional TV, which come between and during shows. 

Here are three types of linear video ads:

• Pre-roll: Before your video content kicks in, pre-roll ads make their entrance, lasting for 15, 30, or 60 seconds. They offer a tried-and-true method for brands to boost awareness, recollection, and purchase consideration. While users might have the option to skip these ads, the key is to craft engaging content in the initial moments to ensure a positive and lasting impression.

• Mid-roll: Shown right in the middle of your video content, mid-roll video ads are the shorter versions of pre-roll ads. Capitalizing on the fact that users have already invested time in watching the video, mid-roll ads have lower abandonment rates and higher completion rates. This makes them a good option for brands aiming to ensure their entire ad gets the spotlight – if only for a few seconds.

• Post-roll: Post-roll ads play as the grand finale at the end of your video content. Despite being the least used in-stream format, these can be remarkably effective. Users, having watched their intended video, are more likely to take the next step and click through to a page. 

2 – Non-linear ads

Non-linear video ads, also known as overlay ads, appear on top of playing content without obstructing or interrupting it. This means they’re less intrusive than linear ads, allowing viewers to continue watching content while the ad is active. 

These non-linear ads can manifest as follows:

• Overlay banner: This non-linear ad format appears discreetly at the top or bottom of the screen during video playback. It adds a touch of promotion without disrupting the primary content, providing a subtle yet effective advertising tool.

• Overlay text: A non-intrusive companion to video content, overlay text appears during video playback, sharing valuable insights or information without interrupting the main narrative. This format enhances the viewer’s understanding without detracting from the core message.

• Branded canvas unit: The branded canvas unit transforms the screen into a captivating visual canvas. It takes the form of an L-shaped banner that briefly shrinks the video being played, allowing you to showcase your brand in an artistic and memorable manner. This simulates the ad experience from over-the-top (OTT) and connected TV (CTV) spaces on the web.

3 – Companion ads

Companion ads deviate from the strict definition of in-stream as they don’t appear directly within the video stream. Instead, they appear beside the video in the form of an image, text, or rich media ad, positioned outside the video player.

Despite their placement, companion ads play a crucial role in improving brand visibility and combating banner blindness. They’re often used along with linear or non-linear in-stream ads, hence the name “companion ads.”

In-stream ads vs. out-stream ads

We’re focusing on in-stream ads here, but there’s another, similar term you may have heard: out-stream ads. These play in non-video mobile content, for example when you’re scrolling through a newspaper article.
Here’s a table highlighting the main differences between in-stream ads and out-stream ads:

How to choose between in-stream and out-stream ads

The key differences between in-stream and out-stream ads boil down to where they pop up and how they blend into the user’s experience. 

In-stream ads cozy up within video content, creating a bit more interruption, while out-stream ads showcase their flexibility in various formats, offering a smoother user journey. 

When it comes to engagement, in-stream ads take the lead, capturing attention within playback content. However, out-stream ads, though (slightly) less engaging, provide more control to advertisers over where their content appears. 

Final verdict: Choosing between the two advertising formats depends on your advertising goals and who you’re trying to reach.

Benefits of using in-stream ads

Next, let’s review why you should include in-stream ads as part of your digital marketing campaign:

• Readiness: In-stream ads capitalize on the fact that viewers are actively seeking video content. Whether they’ve just clicked on a video, are in the middle of one, or have just finished watching, viewers are already in a video-watching mindset. This makes it more likely they’re sitting comfortably, with audio on, ready to engage with your content.

• High compatibility with OTT and CTV advertising: In-stream ads work well with services like OTT and CTV. This means that when people are enjoying shows or movies on these platforms, they can also see your ads. Not only can you achieve a wide reach this way, but you can use demographic, behavioral, or geographic data to get your ads in front of the most relevant audience segments for your brand. 

• Motivation: Viewers of in-stream ads, particularly non-skippable pre-rolls and mid-rolls, have a motivation to continue watching: to return to the original content. This creates a level of engagement and motivation to see the ad through. Also, the option to skip the ad after a brief period offers a balance, so you don’t alienate viewers who want the freedom to click away. 

• Attention: By momentarily interrupting their browsing routine, in-stream ads compel viewers to pay attention — even if it’s just for a few seconds — helping you break through the online noise and capture the audience’s focus. Unsurprisingly, the average social media ad click-through rate worldwide is 1.2%.

• Affordability: If you’re working with a tight budget, in-stream ads are a smart choice. Depending on the chosen keywords, the cost of views can be low, making it a cost-effective option for businesses with limited money. Plus, if you’re working on a cost-per-completed-view basis, you won’t waste your budget on viewers who don’t watch to the end. 

• Customization: In-stream ads offer marketers great customization flexibility. You get to decide if you want to make people watch the whole ad or let them click away after a certain time, like five seconds or one minute. So, you can customize your ad strategy to fit exactly what you’re trying to achieve with your campaign.

Challenges of in-stream ads

Despite the undeniable advantages, in-stream ads aren’t a perfect paid social advertising solution. Here are some of their biggest drawbacks:

• Intrusive user experience: In-stream ads, while disruptive enough to capture attention, can sometimes be perceived as intrusive. Consider it a flip side of their disruptive nature: viewers may find the interruption jarring, leading to potential negative reactions and unfavorable brand perception.

• Ad-compatible video player requirement: In-stream ads have a technical dependency: an ad-compatible video player for seamless integration. As a result, you have to ensure your chosen platforms and publishers support the necessary infrastructure for delivering the ad.

• Restricted availability: Some platforms may not support in-stream ad formats, restricting the diversity of channels available for advertisers to reach their target audience. This restriction may limit the impact of the ad, affecting the success of your advertising strategy.

• High cost per mille (CPM): Compared to other advertising formats, in-stream ads often come with a higher CPM, with advertisers paying a significant amount for every thousand impressions. This can strain advertising budgets, making it challenging for smaller businesses or those with limited resources to leverage this format effectively.

• Difficulty in aligning ads with playback content: A critical aspect of in-stream advertising is aligning the ad with the theme or tone of the video content. It’s a pivotal factor in sustaining viewer interest. To get this right, you need to plan carefully and understand both the target audience and the broader content landscape.

Best practices for in-stream ads

Creating and executing an effective in-stream ad campaign requires a nuanced approach. To set you on the right path, consider the following in-stream advertising best practices:

1 — Make engaging ads with swift impact

Consumers often click the “Skip” button within seconds. This means that time is of the essence and you need to get your message across before the viewer has the option to skip. 

How do you do that? Create ads that swiftly convey your message. Opt for action-packed scenes or concise product explanations, steering clear of unnecessary jargon. Be sure to highlight the benefits you offer, even if the allotted video time is limited to 30 or 60 seconds.

2 — Ensure it’s viewer-centric

In the brief span you have, focus your in-stream ad on the viewer. 

Address them directly to create a personalized experience — use the word “YOU” as frequently as possible. You can also use the phrase “so you can” as a powerful psychological language pattern, to keep the video benefit-focused and tailored for the viewer. 

For instance, structure your message around addressing a viewer’s pain point, showcasing how they can achieve a desired outcome. This personalized strategy resonates well, especially since viewers are actively seeking answers during their brief engagement with the ad.

3 — Differentiate with visual and auditory cues

Leverage visual and auditory strategies to make your ads memorable. Start by promptly displaying your brand logo and maintaining a consistent visual identity with colors and large fonts. 

If your target audience is already familiar with your brand, consider using established script structures for added resonance. For example, if your brand typically uses a humorous tone or storytelling style in your ads, continuing this approach will resonate with viewers already familiar with your advertising style.

Grab attention by incorporating vibrant colors, catchy music or phrases, and engaging movement — this trifecta will hold the viewer’s attention and keep them interested, ensuring your ad makes an impact. 

4 — Use simple and actionable CTAs

Use clear CTA (call to action) messages in the primary text, URL, and video content to encourage action. Avoid using vague language — instead of saying something like “Click here to find out more,” guide the viewer on what will happen and the steps to take. Even a straightforward ‘Shop Now’ works when placed in context:

5 — Add captions for greater accessibility

Subtitles and captions are crucial for viewers who watch without sound or have hearing impairments. Make sure to upload your video subtitles as .srt files for accuracy and to avoid transcription mistakes. This ensures a seamless viewing experience that’s accessible to a broader audience.

6 — Foster a sense of intimacy

Use camera tricks in your in-stream ads to build an emotional connection with your audience. For instance, you can crop in when featuring characters to fill the screen and engage viewers. Maintaining eye contact throughout the video is another excellent tactic to create a personal conversation feel, rather than a commercial presentation.

Key takeaways

• In-stream ads help cut through the online noise and prompt action. They seamlessly integrate with content, playing before, during, or after streaming videos. 
• In-stream ads come in two main formats: linear and non-linear. Linear ads disrupt main video content and include pre-roll, mid-roll, and post-roll ads. Non-linear ads, also known as overlay ads, appear without interrupting the content and include overlay banners, overlay text, and branded canvas units.
• Contrast in-stream ads with out-stream ads, which appear in non-video content. These give advertisers more control over placement, but because they’re less disruptive they tend to achieve lower engagement than in-stream formats. 
• In-stream ads capitalize on viewer readiness and motivation, providing high compatibility with OTT and CTV advertising. They’re attention-grabbing, cost-effective, and offer customization flexibility for marketers with tight budgets.
• Despite benefits, in-stream ads can be intrusive for viewers, prompting them to skip whenever they can. Other challenges include the need for special video players, higher costs, platform restrictions, and difficulties aligning ads  with content. 
• In-stream ads work best when you grab attention fast: use distinctive visuals and sounds, and get your message across as early as possible. Focus on the viewer by talking to them directly and addressing their pain points, and remember to include a clear CTA and accessibility features. 

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Hybrid video on demand (HVOD) is a revenue model for video streaming platforms that combines two or more income streams, like subscriptions (SVOD), advertising (AVOD), and transactions (TVOD).

And in the blink of an eye, the era of low-cost streaming is over. Having access to every Marvel, Pixar, Disney, and Star Wars movie for the price of a single movie ticket now sounds like a fantasy. Because while the race for subscribers initially drove prices down, streaming platforms have realized they can’t keep running on empty. 

Is video on demand in demand?

Streaming accounts for 38.1% of total TV usage in 2023, surpassing broadcast and cable. The result? The birth of a $159.90 billion industry.

The extremely competitive prices that came out of the ‘streaming wars’ made subscribing a no-brainer. Today, retaining subscribers while remaining profitable is the challenge streaming services need to tackle if they want to grow sustainably.

Striking that balance means offering high-quality and unique shows at a price point that subscribers can justify. 

But finding that perfect price point is no easy task. Recently, we’ve seen streaming services raise prices and crack down on account sharing. But, as the economic downturn takes its toll, that’s led to consumers canceling their traditional subscription video on demand (SVOD) subscriptions, turning to free, ad-supported services instead. 

The solution, it seems, is a hybrid pricing model, where platforms offer varying pricing packages with different features and ad frequency.

What is HVOD?

Hybrid video on demand, or HVOD for short, is a monetization model used by over-the-top (OTT) streaming platforms that combines two or more monetization strategies, including ad-supported tiers.

Like hybrid cars, which allow drivers to choose between electricity and gas, hybrid video on demand allows price-sensitive consumers to watch the content they enjoy at the price points that work for them. 

What are the benefits of HVOD? 

A hybrid monetization model allows streaming services to deliver a user experience that works for everyone. That means they can reach a wider audience, and no one has to miss out on their favorite shows. 

Here are a few more ways that HVOD benefits advertisers, publishers (the platforms themselves), and users.

Responding to consumer trends

Hybrid monetization models allow OTT platforms to flexibly package features and pricing to suit the economic climate and align with consumer trends. After all, an ad-free subscription service with a premium price tag may be the first “luxury” to go when budgets are tight. 

By having a range of price points, streaming services can also provide value in other ways, including 4K resolution, exclusive pre-releases, and gaming content.

Personalized ads

Advertising can be a lucrative alternative to subscription content – just look at YouTube. And the more relevant and personalized the ads, the better the response will be.
Increasingly, streaming services are offering a blend of ad-supported and ad-free subscription tiers, with the likes of Hulu, Netflix, Disney+, and Apple TV+ all jumping on the bandwagon. This approach means the platforms have the data they need to deliver highly personalized messaging through programmatic advertising. That translates into more engaged users, and more revenue for advertisers and publishers.

Lower churn and higher retention rates

The hybrid approach means that, when the streaming service inevitably raises its prices, it won’t alienate the entire customer base. Providing a lower-cost alternative helps retain a loyal user base while minimizing churn. 

How does HVOD differ from other OTT monetization models?

There are lots of acronyms to keep up with in the world of OTT, especially when it comes to monetization models. Since HVOD is a combination of two or more of them, here’s a quick refresher on what each one offers.

Subscription video on demand (SVOD)

With SVOD, subscribers pay a regular subscription fee to access the entire library of video content. This is the simplest revenue model, as it relies on predictable subscription growth rather than ad revenue.

Advertising-based video on demand (AVOD)

AVOD lets viewers access the content library for free in exchange for watching ads – the model you’ll recognize from YouTube. This is by far the most accessible revenue model with the largest audiences. 

Transactional video on demand (TVOD)

TVOD asks viewers to pay a one-time fee to watch an individual piece of content, like a newly released movie or a pay-per-view sports event. Typically, you can buy the content for unlimited viewing, or rent it for a limited time period or set number of views. 

Free ad-supported television (FAST)

FAST is the digitized version of cable television, where viewers can watch pre-programmed content for free, powered by advertising. Examples include Pluto TV and Peacock. 

Premium video on demand (PVOD)

With PVOD, viewers can pay for a pre-release or an exclusive piece of content for a fee on top of their existing subscription fee.

Broadcaster video on demand (BVOD)

BVOD is an on-demand streaming service that is tied to a traditional broadcaster, where viewers can watch their television programming online. BBC iPlayer is a well-known example. 

Virtual multichannel video programming distributor (vMVPD)

Similar to bundled sports packages offered by traditional cable companies, vMVPD offers subscribers a group of bundled digital channels for a flat fee that would typically be less than paying for each channel individually. 

How to generate more revenue with HVOD

As well as improving engagement and retention, HVOD gives you multiple revenue sources. Here’s how to get the most out of them. 

Upsell and cross-sell

Offering viewers a low barrier to entry opens up opportunities for OTT services to upsell and cross-sell their features and services. Free trials or free ad-supported tiers let potential subscribers watch shows that they’re interested in for free, before committing to a fully ad-free, binge-worthy experience.

Diversify your revenue sources

With HVOD, OTT services can test and experiment more freely than SVOD services, where customers may be hyper-sensitive to the flat fee. Enabling programmatic advertising allows more brands to connect with your premium audiences, contributing to increased and scalable revenue. On top of this, HVOD also opens the door to strategic content partnerships and affiliate advertising as alternative revenue streams. 

Make data-driven decisions

HVOD enables platforms to gather extensive user behavior data, both with and without ads. Most importantly, this data can highlight price sensitivity. 

This means OTT services can pinpoint features and content that drive the most value, allowing them to confidently adjust pricing or package up attractive bundles. Just don’t overdo it, as too many price changes could turn viewers off. 

Key takeaways 

• Hybrid video on demand (HVOD) is a revenue model for OTT subscription services that combines two or more income streams, like subscriptions (SVOD), advertising (AVOD), and transactions (TVOD).
• In today’s competitive streaming market, more platforms are adopting a hybrid model to broaden their audience and retain users. 
• Offering a range of price points also enables streamers to respond to consumer trends and personalize ads using programmatic technology. 
• HVOD opens up multiple revenue streams, as well as opportunities for cross-selling and upselling. It also provides OTT platforms with valuable behavioral data to shape and scale their offering profitably.

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AOV is the average value of all customer orders over a specified period of time.

What is AOV?

AOV, or average order value, is a metric used in eCommerce to measure the average amount customers spend per order over a certain period of time.

For instance, if you run an eCommerce business, you might analyze your AOV monthly to understand the typical order size. If you sell bars of soap online for $10, and you sell an average of three in each order for October, your AOV for that month would be $30. 

AOV is a dynamic number that fluctuates over time. Tracking it helps you analyze customer buying patterns and ROI on advertising spend, so you can take steps to improve your profitability.

How to calculate AOV

AOV is a simple calculation you can run in your eCommerce platform reporting or in a spreadsheet. First, create parameters or run a report for the period of time you want to analyze. Then run this simple formula:

To calculate your total order values, leave out sales tax but include the amount customers paid for products, shipping, and fees. For example, if your orders for Cyber Monday totalled $12,600 and you received 120 orders, your AOV would be $105. 

Why is AOV important?

First and foremost, AOV tells you how much revenue you typically receive with each order. By monitoring this, you can track and project your revenue over time and optimize your buyer journey for better profits. 

Here are the top benefits of tracking AOV:

1. Grow your revenue

Your AOV tells you how much your customers are ordering. A higher AOV generally points to greater success and revenue gain, since it means your orders were larger, higher value, or more frequent. 

2. Improve LTV

When you know your AOV, you can also improve your lifetime value (LTV), which is the average revenue per customer over their lifetime of buying from your brand. Once you understand which factors lead to larger orders (for instance, a customer loyalty reward or free shipping above a certain spend), you can deploy those tactics to encourage repeat purchases and larger orders.

3. Improve margins

Since gaining a new customer is hard work and expensive, a higher AOV can mean higher margins. Each eCommerce order contains baseline costs: ad spend, shipping, and possibly a new customer discount. Once a customer lands on your website and decides to purchase one item, any additional items will add to your revenue. If you’ve drawn a customer in with a discount, convincing them to add a full-price item will greatly improve your margins. 

4. Understand channel profitability

In addition to calculating your overall AOV, run calculations to compare AOV between channels. If you sell on a marketplace like Amazon or Etsy, for example, compare each channel against direct sales through your website. 

You can also run calculations to contrast AOV and profitability between different advertising sales channels. For instance, you may find that Instagram ads cost double your Google search ad campaigns. But if the users coming from Instagram have a higher AOV than Google shoppers, the higher spend is justified. 

5. Get insight into buying trends and patterns

Tracking your AOV helps you predict patterns and trends that impact your operations. The biggest pattern you should be tracking is seasonal swings. For instance, you may expect higher order amounts in Q4 for holiday sales. Jewelers or chocolate sellers may experience a spike in February for Valentine’s Day. By forecasting when customers will have a higher AOV, you can plan your revenue and staffing accordingly.

You should also run analyses on orders with the highest order values to uncover any trends. Did they happen at a certain time of day? Was there a particular promotion that led to higher orders? 

What is a good AOV?

There’s no universal number for a good AOV. The AOV for a gaming app can’t be compared to a grocery order, which can’t be compared to a luxury jewelry website. Location, market positioning, and other factors make it difficult to compare yourself with other merchants.

That said, marketing insights provider XP² has identified some basic benchmarks you can reference to find an overall benchmark by industry: 

• Home & furniture: $248
• Fashion, accessories & apparel: $142
• Food & beverage: $94
• Multi-brand retail: $84
• Beauty & personal care: $80

AOV varies by location. Interestingly, purchases made from desktop computers have a higher AOV than mobile purchases. Think about it: you might casually order a book or some socks from your phone while you’re on the bus, but when it comes to investing in a new laptop or washing machine, you probably want to get comfy and do your research on a bigger screen. 

When benchmarking, remember that the most important comparison point you have is yourself. Work to improve your own AOV relative to previous time periods, instead of worrying about external benchmarks.

How to increase AOV

AOV is a powerful metric that offers insight into customer behavior. But tracking your AOV is more than just knowledge — once you know your average, you have the opportunity to grow it. While there are many strategies for increasing AOV, they all boil down to two goals: encouraging customers to buy more products and spend more on products. 

Here are seven strategies you can employ to grow AOV — and with it, your business.

Upselling

Upselling is the practice of selling a premium or more expensive product shortly before a customer completes their purchase. If a customer has a coffee maker in their cart, for instance, you might suggest the next model up, which includes an espresso machine. Each eCommerce platform has its own way of displaying upsells on a product page or checkout flow.

Cross-selling

Instead of replacing a desired item with a higher-value one, cross-selling lets you suggest complementary products as an add-on. So alongside a coffee maker, you might suggest coffee filters. Some eCommerce sites accomplish this through recommended items on a product page or in the checkout flow itself. You can link recommended items in the back-end of your online store, or even use personalization for successful cross-selling. 

Bundling

Bundling helps you grow AOV by getting customers to buy more products. Instead of selling products, X, Y, and Z individually, offer them as a bundle. Continuing with the coffee machine example, you could offer an espresso machine with a milk frothing pitcher and a grinder to give the complete setup to start making espresso drinks. 

There are several reasons customers like bundles. One may be because there’s a slight discount and price advantage to buying them together. Another reason is perceived value: there’s a convenience to buying multiple items that you need or want that go together, and it saves them time shopping.

Free shipping (with an order minimum)

Free shipping doesn’t help your margins for a small order, but can create an incentive for customers to place a larger order. A Shopify study found that people spend $22 more per order with free shipping over paid shipping, and that they order 2.5 items per order with free shipping compared to less than two items without. 

The key to success with this strategy is strategically choosing an order minimum that’s above — but not too far above — your AOV. For instance, if your AOV is $60, you may want to choose an order minimum of $75.

Applying a percentage discount

Just like with free shipping, you can use a percentage discount to incentivize bigger spending. For example, spend $100, get a 15% discount. If your AOV is $70 and you can convince customers to spend $100 instead, you’re still bringing in more revenue even with the discount.

Loyalty programs

A loyalty program gamifies shopping by offering rewards relative to how much the customer spends. The most effective loyalty programs give transparency into how close someone is to a reward and send offers and reminders to encourage spending. Take Starbucks’ loyalty program, for instance: customers can view their Star balance at any time and take advantage of special offers to double their points earned. 

Customer service programs

While it might seem like customer service and order values are unrelated, they’re more closely connected than you think. 

Making a purchase, especially for a customer new to the brand, represents a risk. Customers don’t know if the quality will hold up to their expectations, and may start with a small first order or abandon the process completely. Having customer service easily accessible by chat to answer questions allays their concerns. A responsive customer service department gives people the confidence to order more items, knowing you’ll be there for them if they’re unhappy.

Key takeaways

AOV (average order value) is a crucial eCommerce metric that shows the average value of orders placed by customers over time. By tracking and optimizing this number, you can boost your revenue and improve your margins.

• A higher AOV translates into higher revenue and improved customer lifetime value (LTV).
• AOV gives you insights into buying trends and lets you analyze channel profitability.
• A good AOV varies across industries and locations. Instead of benchmarking against competitors, focus on increasing your own AOV each month.
• AOV can fluctuate based on seasonal patterns and events. Recognizing these trends allows you to forecast revenue and adequately prepare for changes in customer behavior during peak periods, such as holidays or special events.
• Strategies for boosting AOV include upselling, cross-selling, bundling, free shipping, discounting, loyalty programs, and customer service.
• With AOV optimization strategies, you can incentivize customers to buy more items and spend more overall.

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Purchase frequency is the average number of times a customer orders from you in a set period.

What is purchase frequency?

Purchase frequency is an eCommerce metric that tells you how often customers buy from you in a set period. Many retailers monitor purchase frequency by quarter and by year. While the expected purchase frequency is different for a pair of shoes than it is for a car, tracking this number enables you to benchmark your performance, identify seasonal patterns, and forecast future sales. 

How to calculate purchase frequency

To calculate purchase frequency, determine the time period you want to analyze then use this simple formula:

The key here is tracking unique customers, not the total number of customers. For instance, say you have an online pottery shop and processed 50 orders in Q2 from 35 unique customers. 25 customers each made a single purchase, while 10 customers accounted for the remaining 25 orders. In this case, the purchase frequency would come out to 1.43 — in other words, the average customer placed 1.43 orders in Q2.

How to track unique customers

Of course, to calculate this number with accuracy, you need a way to identify repeat customers. While this can be difficult in a brick-and-mortar business, it’s easier in eCommerce because you have a built-in way to collect identifying information. As a gold standard, encourage customers to create an account with you to track their purchases.

Even when they use guest checkout, you can add customers to a customer relationship management (CRM) database each time they make a purchase, so you can track unique customers by their email address. Another option is to use AdTech to track online shoppers by their IP address. 

If you use point of sale (POS) in addition to eCommerce, encourage customers to enter their phone number, email address, or other identifier to merge your data.

Why is it important to measure purchase frequency?

Purchase frequency is important because it’s a key indicator of customer retention – how often customers return to buy again. Customer retention is a good sign that customers are happy with your products or services and that they’re building buying habits. It’s also far cheaper to incentivize past customers to buy from you than to acquire new ones. 

Here are three ways purchase frequency can help your eCommerce business: 

1. Understand purchasing behaviors

Do repeat purchases happen at a certain time of year, or on a certain day? Is a particular promotion or marketing channel leading to repeat purchases? Tracking your purchase frequency for different variables like these illuminates patterns to help you understand what’s bringing customers back.

2. Analyze product performance

You can drill down further by measuring the purchase frequency for each product or product category. Identify which products are bringing customers in the “door” to buy again and again so you can put more resources into promoting those products. 

3. Boost customer retention and profitability

Once you know your number for purchase frequency (and how it changes throughout the year), you can get to work optimizing it. For example, if you identify a segment of customers with high purchase frequency, you can create loyalty programs or offer personalized discounts for them to encourage repeat purchases. Since customer retention costs less than customer acquisition, this approach can save you money and boost your profits. 

Purchase frequency vs repeat purchase rate (RPR)

Another eCommerce metric similar to purchase frequency is repeat purchase rate (RPR). RPR measures what percentage of your customers make a repeat purchase in a set period. Here’s how to calculate it:

While both metrics measure customer retention, purchase frequency tells you more about the scale of repeat purchases and their potential value. 

Let’s say that you’re comparing two online pottery shops. Shop A has a 50% RPR, as half of its customers came back to place a second order that year. Shop B also has a 50% RPR, but has an extra loyal fan base, and returning customers placed an average of three more orders that year. By these metrics, Shop A has a purchase frequency of 1.5, while Shop B has a purchase frequency of 2.5.

What is a good purchase frequency?

As with most things in life, “good” depends on a number of factors. Purchase frequency varies extensively depending on the industry. Purchases like groceries or coffee are frequent and follow weekly or even daily habits. Large purchases like airline tickets, furniture, or a car might happen just once a year or even less – but that doesn’t mean they’re less successful. Mid-line retail items like apparel and gifts often experience seasonal swings. 

A study by customer retention platform Beans found the following benchmarks for eCommerce brands by category:

• Books, music, & education: 4.5 (purchase frequency per year)
• Pets: 4.49
• Electronics: 4.17
• Vaping & e-cigarettes: 3.96
• Home & leisure: 3.64
• General goods & supplies: 3.5
• Fashion: 3.25
• Food: 3.12
• Toys & hobbies: 3.04
• Beauty & cosmetics: 2.81
• Sport: 2.46

Ways to increase your purchase frequency

Looking for ways to optimize your purchase frequency? Try these five tactics to encourage customers to buy again.

1. Loyalty programs

One way to encourage customers to make more frequent purchases is through loyalty programs. Used by global brands including Marriott, Sephora, Starbucks, and H&M, these programs reward customers for repeat business, often offering exclusive discounts, reward points, or special promotions. By giving incentives for continued purchases, you can nudge customers to buy a familiar brand. 

2. Diversified product offerings

When analyzing which products to add to your store, it’s important to consider whether your products are necessities or discretionary items. When offering a necessity like dog food, you’re limited in how frequent your orders will be because dogs only eat so much food. With consumer goods and luxury items like dog toys or clothes, however, you can increase both your order frequency and your average order value (AOV). 

Offering basic items can anchor your purchases by bringing customers in to buy what they need; then you can promote add-ons with cross-selling. Basic items are also typically recession-proof: dog owners will continue buying dog food no matter the economic conditions, whereas they might skip the dog costume when budgets are tight.

3. Personalization

Personalization is another powerful tool to increase purchase frequency. With today’s marketing technology and the ability to segment and tag audiences in a CRM, it’s easy to create personalized offers and communications for customers. 

Here’s an example: say you sell makeup online and you know the typical bottle of foundation lasts 12 weeks. You can set up an automated email journey to send to buyers 10 weeks after making a purchase with the message, “Running out of X product? Refill today with 10% off”. 

By tailoring offers and recommendations based on individual customer preferences and past purchasing behavior, businesses can create a more personalized shopping experience. This not only enhances customer satisfaction but encourages people to buy more frequently.

4. SMS and email marketing

Out of sight, out of mind. When your brand doesn’t stay visible, customers aren’t likely to remember your product and buy again. Retention campaigns through SMS and email are effective at driving repeat purchases through customer engagement. 

Create newsletters, social media channels, and SMS campaigns to engage existing customers with your brand. Don’t just make your content about the products: add value to customers with practical tips, customer stories, and videos that will give them a reason to follow along. 

5. Subscriptions

Lastly, subscriptions offer a convenient way for customers to regularly receive products or services they need on a recurring basis. Programs like Amazon Prime Subscribe & Save popularized this approach, and now consumers are embracing subscriptions for everything from coffee beans to craft kits to toilet paper. 

The beauty of subscriptions is that once you’ve sold it, it’s essentially passive income: you have a guaranteed number of orders until renewal time. With month-to-month subscriptions, your potential number of orders is unlimited. 

By offering subscription options with added benefits such as discounted pricing or exclusive access to new releases, businesses can ensure regular revenue streams while increasing purchase frequency.

Key takeaways

In summary, purchase frequency is an essential metric for eCommerce businesses looking to increase retention and drive growth in today’s competitive market. 

Here are the key points to remember:  

• Purchase frequency is an indicator of customer retention, a valuable way to grow your revenue without the high price tag of new customer acquisition.
• Measuring your purchase frequency gives you valuable insights into customer behavior and buying patterns throughout the year: knowledge you can use to optimize and grow your sales.
• The typical purchase frequency varies wildly by product category. Frequency tends to be lower for luxury items and apparel, and higher for consumables and essential items. 
• Loyalty programs are a great way to track customer behavior and incentivize repeat purchases, while a subscription model ensures a steady income from loyal customers.  
• It’s important to offer a range of products, from essentials to discretionary items. When you track purchase frequency for different product categories, you can identify, add, and promote high-frequency products.
• Offers and discounts are a great way to encourage repeat orders. Take your promotions to the next level with personalized offers, and craft SMS or email campaigns to give your customers relevant offers with a VIP feel.

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Attribution modeling is a way of measuring how effective marketing campaigns and channels are at influencing people to take a desired action (such as making a purchase).

What is attribution modeling?

Attribution modeling is a way of measuring the impact of different marketing efforts across the customer journey, so that advertisers can assess which channels or campaigns are most effective in driving conversions. 

As they engage with a brand, users are exposed to various marketing touchpoints — both paid and organic — which can influence them to take a particular action (installing an app or making a purchase, for example). Attribution models analyze interactions with these touchpoints, and work out their contribution to the decision-making process. 

Attribution modeling can be single-touch, analyzing the effectiveness of a single click, or multi-touch. Multi-touch attribution models (MTAs) help marketers understand how consumers make decisions across multiple brand engagements over time.

Why is attribution modeling important? 

Attribution modeling gives marketers vital insight into what’s working and what’s not in their campaigns. If you don’t understand where your leads and sales are coming from, you may continue to invest in ineffective channels and lose out on potential revenue.

What are the benefits of using attribution models? 

When you understand which campaigns are driving user engagement, you can double down on what’s working and increase your ROI. Let’s take a closer look at some of the benefits of attribution modeling. 

1. Better resource allocation

Attribution modeling helps you allocate your marketing resources more efficiently. You can shift budget and effort away from underperforming channels, reducing waste, and towards those that have a higher ROI and greater impact on conversions.

2. Agile decision-making

Attribution modeling helps you make smart, data-driven decisions about your marketing efforts in real time, so you don’t waste a cent of your budget. Instead of making decisions at the start of a campaign and assessing monthly or quarterly, you can test and adjust messaging quickly based on immediate results. Some tools can even A/B test content and automate allocation based on results. 

3. Personalization

With cross-device tracking, you can understand the customer’s previous interactions and behaviors. Use these insights to create personalized marketing experiences, leading to more engaged, loyal users and increasing the chances of conversion.

What are the different attribution models? 

There isn’t just one attribution model to assess your campaign’s effectiveness – there are many. 

Because each customer’s journey can involve multiple touchpoints in the buying process, marketers need to decide which touchpoints have the most influence on the conversion.

Single-touch attribution

The simplest attribution methods are single-touch — in other words, they measure the impact of one particular touchpoint in the customer journey. 
First-click (or first-touch) attribution assigns the credit for each conversion to the first interaction the customer had with a brand, like clicking on an ad or social media content. Last-click (last-touch) attribution, on the other hand, credits the last interaction before the conversion.

For example, let’s say a user discovers a product through an organic Google search and later makes a purchase after clicking on a paid advertising banner. A first-click attribution model would attribute the conversion entirely to the organic search, ignoring the influence of the paid ad. A last-click attribution model would attribute the conversion entirely to the ad, ignoring the influence of the earlier touchpoints like organic search. 

While first-click and last-click attribution provide straightforward ways to assign credit, they can oversimplify the customer journey by ignoring other interactions and touchpoints that may have played a crucial role in the conversion process. 

Multi-touch attribution (MTA) models

MTA models, such as cross-channel or time-decay attribution, aim to provide a more holistic view of how different marketing channels contribute to conversions by considering multiple touchpoints along the customer journey. These models can offer a more nuanced understanding of the customer’s path to conversion and help you allocate resources more effectively across various channels.

Here’s an overview of the different attribution models and how they work:

What are the challenges of attribution modeling?

Attribution modeling is a powerful tool for marketing teams, but putting it into practice can be complex. 

Industry changes, particularly in the area of privacy, are posing challenges for attribution modeling and eroding the data available to companies. Overcoming these challenges requires a combination of technology, data governance, and ongoing refinement of attribution methodologies to better align with evolving customer behavior and business goals.

These are the top four attribution challenges facing marketers today — along with some possible solutions:

Data accuracy

Since attribution modeling relies heavily on data, inaccurate or incomplete data can lead to misattribution. Ensuring that data sources are clean, reliable, and consistent can be a significant challenge.

Solution: Put data governance in place in your company to apply best practices and expertise. Make sure you have a trained data analyst on your team, or ask an internal or external consultant to audit your data collection processes. 

Data integration

MTA and cross-channel models can provide a more accurate picture of how marketing efforts contribute to conversions because they acknowledge the complexity of the customer journey. However, integrating data from these disparate sources can be complicated: data needs to flow seamlessly from multiple sources and be properly mapped to customer journeys.

Solution: A UK report found that two-thirds of marketers don’t believe they have the right tools to support cross-channel attribution. To help you, work with an analytics platform like AppsFlyer that specializes in data integration across channels. 

Cross-device tracking

According to an eMarketer report, cross-device tracking is the second-largest (42%) attribution challenge for marketers. Customers often switch between devices ( like desktop, mobile, and tablet) during their journeys. Tracking these cross-device interactions accurately can be challenging, as cookies and identifiers may not always work seamlessly across devices. 

Solution: Implement AdTech solutions that recognize users based on identifying factors like email address, matching IDs, or cookies. 

Privacy and compliance

Stringent regional privacy regulations such as GDPR and CCPA limit what user data you can collect and use. Apple’s ATT framework and Google’s plans to eliminate cookies also restrict what data you can track.

Solution: Rely more heavily on first-party data, such as directing users to your website or app or incentivizing them to opt in as a subscriber. You can also start using privacy sandboxes to proactively address this problem in mobile advertising. 

How to choose the right attribution model for your business

Just as customers can take more than one journey to find your product, there’s more than one right way to measure attribution. When it comes to choosing an attribution model, the first decision you need to make is between single-touch and multi-touch attribution. 

An MMA report found that a majority (53%) of companies used multi-touch attribution models in 2022. Companies that use MTAs are more satisfied (70%) with their ability to measure the effectiveness of marketing spend than those that don’t (42%). Most MTA users (63%) are better able to immediately apply their learnings, versus those using single-touch (51%). 

While MTA has clear benefits, it remains more difficult and more expensive to implement. Many companies remain in an adoption phase, with only 27% of companies saying they’re at full MTA deployment. 

If you decide to go down the MTA route, you need to select a specific model such as linear, W-shaped, or U-shaped attribution. You should choose a model that aligns with your company’s goals, data availability, and understanding of customers’ behavior. 

Here are four factors to consider:

The customer journey

How complex is your product and buying journey? A widely-recognized consumer product will have a completely different customer journey than a B2B service or software with multiple steps and decision-makers.

Sales cycle

How long or short is your sales cycle? U-shaped attribution is good for measuring short sales cycles, while W-shaped or linear models may capture the nuances of longer cycles.

Offline factors

If offline advertising such as direct mail, TV, or out-of-home still forms an important part of your marketing strategy, MTA will paint a limited picture. While you may be able to collect some data relating to these channels, you’ll need to consider if it’s possible to integrate it with online data. 

Company size and resources available

Of course, staffing and budget will always play a role in decision-making. Small companies may not have the skill or time in house to implement MTA. They also may not have the budget to invest in agencies, adtech, or comprehensive measurement tools. However, the more you can measure, the easier it will be to demonstrate marketing ROI and make wise use of shoestring budgets. 

How to measure results

As we’ve covered, there’s a range of approaches and tools available to measure attribution. Whether you want an out-of-the-box solution or complete customization, here are three ways you can measure and attribute results for your campaigns:

Google Analytics 4 (GA4)

GA4 is the most popular web analytics tool on the market. A free tool, it can integrate data from both websites and apps, and from paid and organic campaigns. Features include multi-channel funnels and attribution reports that offer insights into how different marketing channels and touchpoints contribute to conversions. The default attribution model on GA4 is “last interaction” (last-touch), but you can switch to several alternatives. 

While GA4 is a powerful tool, integrating GA4 with non-Google tools and platforms can pose a challenge. 

Third-party attribution

When integrating data from a variety of sources, a third-party attribution system can be valuable. These are external tools, platforms, or services that give a more independent and comprehensive view of your marketing performance. For example, a third-party attribution tool can seamlessly integrate real-time analytics from multiple advertising sources. Look for features like cross-channel tracking, deep linking and in-app analytics, audience segmentation, and fraud detection. 

Creating your own tool with Python

If you’re looking for a custom analytics tool, you could choose to build your own in Python. Building a custom tool is a complex undertaking, but is possible with the right knowledge and tools. A developer will need to collect and prepare the data, choose an attribution model, process the tool through a Python library, and apply the model to the data with visualization and custom reporting.

Key takeaways

• Attribution modeling is a way of measuring the impact of marketing activities across the customer journey. The models analyze customer interactions with various touchpoints, and work out how much each has contributed to the conversion. 
• Effective attribution modeling shows marketers what’s working and what’s not. It offers insights that enable better decision-making, resource allocation, and personalization.
• The key challenges marketers have to overcome with attribution modeling are data accuracy and integration, cross-device tracking, and privacy concerns. 
• While multi-touch attribution (MTA) gives a fuller picture than single-touch, it’s more complex to implement.  
• There is no one-size-fits-all solution to attribution modeling. Consider your sales cycle and customer journey, resources, and goals when choosing a model.
• Consider your overall marketing mix and strategy when choosing an attribution tool. Depending on your needs and resources, you can opt for a free, out-of-the-box tool, a third-party provider, or a DIY approach. 

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Churn rate represents the rate at which customers stop using your product or service. In the mobile app world, it refers to the rate at which users disengage from your app.

What is churn rate?

Churn rate, also called rate of attrition, measures how quickly a company loses customers within a set timeframe. In the context of mobile apps, it represents the percentage of users who have discontinued using your app – whether they uninstall it, cancel their subscription, or just let the app sit there unopened and unloved. 

This disengagement can happen if users are dissatisfied with your app, if they’ve switched to a competitor, or in response to other factors such as affordability. 

A high churn rate can significantly impact your business’s profitability and hinder its expansion. That’s why it’s essential to make reducing churn and enhancing user retention a top priority to ensure continuous growth and financial success.

Churn rate vs. retention rate

Churn rate quantifies the proportion of users lost in a specific period, while retention rate indicates the percentage of existing customers who continue using your app.

Suppose your mobile app starts the month with 1,000 users, but by the end of that month, 200 users have decided to switch to a competitor. In this scenario, your app’s churn rate for that month stands at 20%. On the flip side, the retention rate for the same month would be 80%, reflecting the percentage of users who stay committed to your app.

Why is churn rate important?

User churn rate is a reliable metric to assess customer satisfaction and business health, often serving as a primary KPI for app companies. You can use it to track how many users leave your app and why — helping you determine how ‘sticky‘ your app is.

Another important thing to note is that losing a customer doesn’t only mean losing revenue. You also face the cost of acquiring new users, including marketing expenses and sales costs. 

Churn rate informs businesses about customer lifetime value (LTV) and sets the budget for acquiring new customers (customer acquisition cost, or CAC). By analyzing the LTV-to-CAC ratio, you can gauge spending efficiency. If your ratio is 1:1, your costs are wiping out your value and you’re not making any profit. 

Here are some more reasons why monitoring churn is essential for app success:

• Improves customer retention: It’s more cost-effective to retain existing app users than acquire new ones. In fact, reducing churn by just 1% can lead to substantial savings.
• Determines product-market fit: High churn rates may indicate a mismatch between your app and your target audience, signaling the need for adjustments to meet user needs.
• Boosts customer lifetime value: Churn directly impacts LTV, as existing users provide more value to your bottom line. This means it’s vital to enhance LTV to justify spending more on user acquisition. .

How do you calculate churn rate?

Here’s the formula to work out your churn rate:

By measuring your app’s churn rate on a regular basis, you can track and improve your app’s user satisfaction and stickiness.

You may want to do this monthly or annually. Tracking monthly churn gives you a close look at month-to-month growth and retention, while annual rates can reveal year-over-year growth trends. Here’s how the two timeframes work:

Monthly churn rate example for apps:

Suppose you have an app that starts the month with 10,000 users and ends the month with 8,500 users.

A 15% monthly churn rate means you lost 15% of your user base during the month.

Annual churn rate example for apps:

Let’s say your app’s user count at the beginning of the year is 50,500, and by the end of the year, it’s dropped to 45,000.

Your app’s annual churn rate is 10.89%, indicating your user base reduced by 10.89% over the year.

What is considered a “good” churn rate?

Having a zero churn rate is ideal for any business, but it’s an unattainable feat in reality. Regardless of the circumstances, some user attrition is inevitable. In fact, the average app loses 77% of its daily active users (DAUs) within the first three days after install.

Generally, an annual churn rate of between 4% and 7% is seen as manageable. However, it’s crucial to understand that different industries have their unique benchmarks for what constitutes an acceptable churn rate. So, a “good” churn rate for your app should not only align with your specific goals, but also consider the prevailing standards within your industry.

How do I figure out why my users churn?

From a buggy app and bad customer support to steep subscription prices and the wrong target audience, users can churn for a multitude of reasons. It may be that they aren’t achieving their desired outcomes through your app, feel your competitors are better, or no longer see the value in your app.

So how do you pinpoint the root cause of your app’s churn? Here’s a quick step-by-step guide:

1. Look at your data: Analyze existing user data, paying close attention to the retention patterns during the first week, month, and 90 days. This will help you identify uninstall trends.
2. Pinpoint peaks in uninstalls: Next, visualize your uninstall data, pinpointing moments where users churn. Focus on identifying spikes in the data to understand where exactly your users are disengaging, aka the reasons for the drop-offs. For instance, is there a bug in your app? Are users getting frustrated because of the limited access to core features? Does your onboarding process properly highlight the app’s features and benefits? 
3. Analyze your communication strategy: To minimize churn, assess how and how often your customer support team connects with users. Review how you reach users within your app and evaluate if these efforts are effectively re-engaging and retaining them. Ensure you send timely, relevant messages and reminders to build an active relationship. 

Tips for reducing churn rate

Next, let’s discuss the measures you can take to reduce churn. 

1 — Use cohort analysis 

Cohort analysis improves user retention by pinpointing when and why users churn. You can then further investigate the reasons that led to churn, and take targeted actions to keep users engaged with your app. 

So, how does cohort analysis reveal why users churn? It highlights critical moments in the user journey. Instead of looking at all your users together, cohort analysis divides them into related groups. Comparing these groups over time makes it easier to determine the root cause of churn, as well as identify what keeps users coming back.  

Here are some key questions to ask: 

• Acquisition channel: Where do your most successful users come from? (For example, search, social, paid ads, referrals)
• User actions: What actions do successful users take? (For example, create an account, make a playlist, add friends)
• Timeframe: How quickly do successful users complete these actions? (For example, within an hour, a day, a week)

For instance, suppose you run a food delivery app. Initially, users order within three days, but by Week 2, activity drops. Cohort analysis reveals that frequent orderers log in between 10 AM and 11 AM, and those accessing the app after noon tend to leave quickly or abandon carts, with 98% becoming inactive within a month. 

You can send personalized push notifications between 10 AM and 11 AM with promo codes to boost engagement — a strategy made clear through cohort segmentation.

2 — Optimize onboarding – make it seamless

Churn commonly takes place at the beginning of the user journey, and the biggest culprit is the absence of an effective onboarding program that teaches them how to use your app. This shifts the responsibility of figuring out how the app works onto the user — and that’s risky business.

To ease this transition, set up a comprehensive onboarding process to guide new users through your app’s features and functionality. Reduce the number of steps to simplify app experience and ensure users reach your app’s “Aha!” moment faster. This will make users feel supported and empowered to succeed with your app, making them less likely to churn.

3 — Personalize the app experience

Personalized experiences are no longer a nice-to-have — today, app users expect and demand them. So, the better your app meets their needs, the lower your churn rate will be.

Think about how you can customize your app’s user experience based on the features they use most frequently, and the rewards that excite them the most. Use relevant and targeted messaging that resonates with your users. 

Note that this isn’t a one-size-fits-all tactic. You need to leverage behavioral data like search and purchase history, user preferences, and device type and location to customize interactions.

4 — Re-engage users through owned media

Sending triggered reminders to your user’s home screen is a handy tactic to encourage engagement and ensure repeat visits. Use owned media channels like in-app messaging, push notifications, SMS, and email to reach out to users before they need you. This shows you’re invested in helping them get the most out of your app.

5 — Use deep linking to enhance user experience

Deep linking empowers developers to redirect users to precise in-app locations, ensuring a smooth and convenient app experience. 

Imagine a user exits your gaming app midway through a game. You can send them a push notification as a gentle nudge to re-engage them, and deep link it to transport them directly to the exact point in the game where they paused. 

This not only eliminates the need for manual app navigation, but also enhances user retention and engagement.

6 — Plug the churn leaks 

To prevent people from ditching your app, you need to figure out why they’re leaving and fix it. 

Check your app data to see exactly where they’re dropping out. Is something not working right? Are there too many tutorials when they start? Maybe you’re sending too many messages or asking them to pay too soon? Examining your data closely will help you identify churn causes and keep more people using your app happily.

Key takeaways

• Churn rate measures how many customers you lose over a set period, or how many users stop using your app. App businesses use it to track user satisfaction and business viability. 
• High churn results in lost revenue, and increased costs as you acquire new users, making it crucial to focus on reducing churn and improving user retention. While zero churn is unattainable, you want to keep the rate as low as possible. 
• Churn rate and retention rate are opposite metrics. Churn rate represents users lost in a specific period, while retention rate indicates the percentage of users continuing to use your app.
• Churn rate is calculated using the formula: (Start users – End users) / Start users x 100. It can be calculated monthly or annually to gain insights into user retention.
• Users may churn for various reasons, from technical issues to competition or value perception. Analyzing data, identifying uninstall patterns, and optimizing communication can help you see when and why users churn.
• Strategies for reducing churn include cohort analysis to understand user behavior, optimizing onboarding to make it user-friendly, personalizing the app experience, re-engaging users through messaging, using deep linking for seamless experiences, and addressing issues that cause churn based on app data analysis.

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Earned media refers to brand exposure or publicity obtained through organic promotional efforts. Brands don’t pay for this content, nor do they have direct control over it.

What is earned media?

Earned media, also known as earned content, refers to the genuine recognition and coverage your brand receives from third-party sources. Customers leave reviews and recommendations, share your content, mention your brand, repost your material, and more — all because they genuinely love what you do. 

This kind of exposure isn’t paid for or controlled directly by your brand. Instead, it’s the organic buzz that builds around your offerings, events, and products. You’ll see your brand naturally popping up in videos, images, and other popular examples, proving how much people appreciate what you offer.

Nowadays, savvy marketers are increasingly turning their focus to earned media opportunities. With the power of social media marketing and online public relations, they’re strategically positioning their brands to reach and engage with their target customers more effectively.

Earned media vs owned media vs paid media

Before we dive into the differences, let’s define owned media and paid media.

• Owned media refers to those exclusive web properties that you have full control over and that are uniquely tailored to your brand. With this complete autonomy, you can curate engaging content, deliver captivating stories, and foster meaningful interactions with your audience, leading to deeper connections.

The most familiar example of owned media is, of course, your website — the virtual hub where your brand story comes to life. Blog sites and social media channels also play crucial roles in representing your brand’s essence.

• Paid media encompasses marketing efforts where you pay to promote your brand. Its purpose extends beyond standalone promotion; it plays a crucial role in generating earned media and driving traffic to your owned media properties.

By investing in promoting content, you can achieve immediate visibility and broader exposure. Platforms like Facebook, Twitter, and LinkedIn offer excellent opportunities for paid advertising, which can amplify your content and direct traffic to your website. Collaborating with influencers is another effective tactic, allowing your products or services to reach a wider audience.

Here’s a table outlining the differences between earned, owned, and paid media: 

Integrating earned media with paid and owned media 

Each media type serves a distinct purpose in a well-rounded marketing strategy. But the best marketing campaigns often combine all three — earned media, owned media, and paid media — to achieve optimal results, such as:

• Maximized reach and impact: Integrating all three media types allows you to cover a wider range of audience touchpoints. Earned media generates word-of-mouth, owned media controls brand messaging, and paid media expands visibility to targeted demographics.
• Increased credibility and trust: Earned media’s authenticity, along with aligned owned media content, reinforces brand credibility. Paid media amplifies positive experiences, fostering trust and brand loyalty.
• Optimized marketing ROI: Combining media efforts aligns your marketing efforts to work harmoniously towards common goals. Leveraging earned and owned media prepares your audience for paid campaigns, leading to higher conversions and improved ROI.

Wondering how to seamlessly integrate your earned, owned, and paid media efforts? Here are some tips:

• Employ consistent brand messaging: Unify your brand message across all channels. Use owned media (like your website and social media) to show your unique voice and values, reinforcing your brand through earned and paid media efforts.
• Leverage user-generated content: Amplify user-generated content on owned platforms. Share positive reviews and testimonials to enhance credibility. Then use this content in paid campaigns to encourage engagement.
• Cross-promote content: Integrate media types by cross-promoting content. Share positive earned media coverage on owned platforms and consider promoting it through paid channels for maximum impact.
• Work with influencers: Collaborate with influencers who share your brand values. Have them talk about their experiences with your brand and also participate in paid campaigns for increased exposure, bridging the gap between earned and paid media.
• Measure performance: Use data analytics to track integrated media performance and optimize your marketing strategies. Measure earned media impact, monitor owned media engagement, and evaluate paid media ROI.

Why is earned media important?

Earned media offers a wealth of benefits that can greatly enhance your brand’s presence and reputation. Let’s take a closer look at these advantages.

1 — More brand exposure 

Favorable mentions of your brand without paid promotion often lead to word-of-mouth publicity and other forms of engagement. This could include people following your social media accounts or showing deeper interest in your products and services. While earned media might not immediately result in direct purchases, it leaves a lasting impression on potential users that can lead to future conversions. 

2 — Enhanced brand credibility

Praise from others automatically boosts your brand’s credibility and builds trust with your audience. Picture your brand featured in respected publications like The New York Times or The Wall Street Journal — it’ll enhance your reputation and borrow credibility from these sources, solidifying your market position and instilling consumer confidence in your brand.

3 — Increased brand loyalty

Earned media helps deepen the connection with your existing customers. When they come across positive coverage of your brand, it cements their loyalty and love for your products or services. As a result, they get even closer to becoming enthusiastic brand ambassadors, happily spreading the word about their fantastic experiences with your brand to others.

4 — Improved search engine rankings

Earned media offers more than just exposure and reputation benefits; it also has a substantial impact on your search engine rankings. 

When you earn backlinks from authoritative and credible websites with a high domain or page authority, it significantly enhances your SEO efforts. Search engines value backlinks from reputable sources, and earning them through earned media coverage can positively influence your website’s ranking in search results.

Earned media examples

Next, let’s check out some of the most popular examples of earned media.

User reviews and ratings

Positive app ratings and reviews on platforms like Google Play Store or Apple App Store are earned media gold. Users’ genuine appreciation sparks valuable app promotion, influencing others to try your app.

Search engine results 

Earned media and SEO work in unison in the realm of digital marketing. Valuable website content catches search engines’ attention, potentially landing your blog post on the first page of results. Mastering the right SEO strategies allows you to earn “free” organic placement, making high-quality, relevant content crucial for success.

Social media mentions and shares

When users share their experiences on social media, it generates earned media. Influenced by your brand’s behavior, product quality, and engaging content, organic mentions increase visibility and attract new users. Encouraging users to share their experiences through social media contests or using user-generated content campaigns can further amplify earned media.

Influencer endorsements

Influencers, especially in the tech or app niche, provide valuable earned media through authentic endorsements. When like-minded influencers share their positive experiences with your product, their audience perceives it as a genuine recommendation. The end result? Expanded reach and credibility.

Media coverage and blog features

Product or app coverage in tech blogs, industry news outlets, or online publications generates earned media. Features and articles discussing your product or service’s unique features, benefits, or impact lead to more brand exposure. Consider engaging with journalists and bloggers to secure more opportunities to build market authority.

User-generated content campaigns

User-generated content, such as tutorials, gameplay videos, or creative app use cases, demonstrates real experiences and fosters an enthusiastic community. Reposting and sharing this content on your official channels further amplifies earned media impact.

App awards and recognitions

Winning awards or being recognized in global rankings results in earned media, highlighting your product’s excellence and innovation. This external recognition not only boosts brand credibility, but also attracts media attention and new users seeking top-rated products and services.

Earned media limitations and challenges

Earned media, while a valuable aspect of marketing, does come with certain limitations. These include: 

Unpredictability

Earned media is unpredictable, because you’re dependent on third-party sources to share their experiences about your app. There’s a chance of negative reviews or coverage spreading rapidly, potentially harming your brand’s reputation. For example, a popular gaming influencer endorsing your new gaming app may lead to a surge in downloads. But then, a negative review can equally harm your brand’s reputation, making it a double-edged sword.

Time and effort

Securing coverage from influential bloggers or journalists requires persistent outreach and showcasing the value of your app. And despite this, you can’t control the timing or content of the coverage. This makes trust-building with these external parties crucial, yet challenging and time-consuming. For new brands, this is especially daunting as they’re still unfamiliar with the market and need to establish themselves in the industry.

ROI measurement

Earned media boosts brand visibility and reputation, but directly linking it to specific financial outcomes is tricky due to the absence of precise metrics. For instance, featuring your health app in a prominent blog enhances awareness and credibility, but pinpointing the exact impact on downloads is complex. Word-of-mouth and other factors also influence user decisions, making it challenging to isolate earned media’s sole effect.

Earned media tactics and best practices

Building a positive brand reputation through earned media requires a genuine and customer-centric approach, focused on providing value to your audience and industry stakeholders. Here are some effective earned media tactics and best practices to build strong relationships with your audience:

1 — Build an earned media strategy

A robust earned media strategy makes it easier to achieve your marketing goals and measure outcomes. Here’s how you can create one for your business:

1. Set clear goals: Define your marketing objectives, whether it’s boosting brand awareness, promoting a specific product or service, or targeting a new audience segment.
2. Know your audience: Identify and understand your target audience to tailor your strategy effectively.
3. Analyze content preferences: Conduct simple Google searches to research what B2B content your target audience prefers. Tools like BuzzSumo are also helpful to understand user preferences.
4. Find the right partners: Seek out publications, review sites, influencers, and supporters that genuinely resonate with your brand values instead of resorting to paid coverage.
5. Craft personalized pitches: Create tailored pitches for your targeted outlets and influencers, ensuring these align with their interests.
6. Amplify on social media: Once you secure earned media coverage, maximize its impact by sharing it across your social channels. Encourage employees, investors, and stakeholders to promote the content too.

2 — Generate more earned media

Take action to generate more earned media by focusing on brand ambassadors. Identify enthusiastic fans on your social channels who actively engage with your content. Think: Facebook fans who frequently like and share your posts, Twitter followers who retweet you, or bloggers who mention your products.

Regularly engage with these brand ambassadors to cultivate their loyalty. Show gratitude by thanking them for their support and consider rewarding them with coupons or sharing their posts on your brand’s social channels. By cultivating these relationships, you can boost your earned media as these advocates authentically promote and advocate for your brand.

3 — Foster long-term relationships with journalists and influencers

To succeed in your earned media strategy, prioritize building strong connections with journalists and influencers. Avoid generic requests and instead, focus on cultivating genuine relationships. Understand their topics and target audiences, and use tools like HARO and Qwoted to connect with journalists seeking expertise.

When approaching new contacts, thoroughly research their content preferences and follower engagement and then craft personalized pitches to match. Strengthen existing influencer partnerships by actively engaging with their content and sharing it when relevant. Remember, long-term collaboration is key for effective B2B influencer marketing, so invest in nurturing these relationships for lasting impact.

4 — Attend industry conferences and trade shows

At conferences and industry trade shows, seize the opportunity to interact personally with other brands, bloggers, journalists, and industry experts. This presents a chance to expand your network and secure earned media opportunities. 

These events often have real-time social media coverage with unique hashtags for participants. Engaging with fellow attendees by mentioning their brands on social media, and receiving mentions in return, creates a collaborative environment. This approach can result in valuable earned media coverage and significantly enhance your brand’s presence.

5 — Leverage experiential marketing

Enhance your earned media through experiential marketing, a powerful approach centered around events and shared experiences with customers. These branded events often receive coverage from both traditional media outlets and online platforms. 

To maximize this impact, implement an event-specific hashtag and actively engage with attendees’ posts through your social media manager, including retweeting, liking, and sharing. Don’t forget to encourage attendees to share their experiences on their own social networks, creating a ripple effect of organic promotion.

6 — Get more positive product reviews

Positive product and service reviews on third-party sites make a big difference in how customers perceive a business. Case in point: a whopping 94% of people are more likely to use a company’s offerings if they read good reviews about them elsewhere.

Here are some actionable tips to drive website traffic and influence customer behavior in your favor using reviews:

• Keep it real: When it comes to reviews, authenticity is key. Stick to using feedback from real customers — no fake names or email addresses allowed!
• Spread the love: Don’t just keep those great reviews to yourself. Share them across different platforms like social networks, online forums, and blogs. This will help you reach a wider audience and build trust with your potential customers.
• Strategic publishing: Take charge and post those shining reviews on platforms like Amazon, Facebook, Yelp, TripAdvisor, or even on your own website. This way, you can proudly showcase all that positive feedback while having control over the content.

7 — Focus on generating more word-of-mouth recommendations

Word-of-mouth marketing is one of the most powerful forms of earned media, and the best part is, it happens organically. People will recommend your business without you even asking, and once that spark is ignited, it spreads like wildfire. 

To maximize word-of-mouth publicity:

• Focus on building trust. Respond promptly to customer feedback and show you genuinely care about their experiences. Creating credibility through quick responses goes a long way in winning customers over.
• Provide exceptional customer experiences. Friendly, helpful, and responsive service creates lasting impressions and builds loyal relationships. Take the time to make every interaction special, and treat each customer like they matter. 
• Ask for referrals. Those who already recommend your products or services are your best advocates. Offer incentives like discounts or coupons to fuel their enthusiasm and get more people talking positively about your brand.

Remember, word-of-mouth doesn’t happen overnight; it requires continuous effort and investment in building a positive reputation. But over time, these efforts lead to big rewards, and your business will thrive as satisfied customers become enthusiastic advocates, spreading positive word-of-mouth and boosting your brand’s reputation.

8 — Run a social media contest

Capture your audience’s interest with an engaging social media contest that generates excitement and buzz around your brand. To maximize impact, set clear rules and align the prize with your target audience’s interests.

You can amplify visibility by promoting the contest vigorously across all social channels. Don’t hesitate to collaborate with influencers for added reach while you’re at it. And once the contest ends, celebrate the winners and their entries on your social media platforms to create a ripple effect of engagement, forging lasting connections with your audience.

Key takeaways

• Earned media is genuine recognition and coverage a brand receives from third-party sources, like user reviews, social media mentions, and media features. It’s unpaid and not directly controlled by the brand.
• By integrating earned, owned, and paid media, brands can maximize reach and impact, increase credibility and trust, and optimize their marketing return on investment (ROI).
• Advantages of earned media include greater brand exposure, improved brand credibility, and increased brand loyalty. However, it can be unpredictable, time-consuming, and hard to measure accurately..
• Building a positive brand reputation through earned media requires a customer-centric approach. Set clear goals, know your audience, and craft personalized pitches for an effective strategy.
• To generate more earned media, focus on building and nurturing relationships with brand ambassadors, journalists, influencers, and other industry stakeholders. Genuine engagement and appreciation can lead to increased advocacy for your brand. 
• Amplify earned media through tactics like industry events, experiential marketing, and social media contests. Focus on word-of-mouth recommendations, product reviews, and exceptional customer experiences to boost your brand’s reputation.

The post Earned media appeared first on AppsFlyer.

AdTech is the market of technology providers and systems that make up the infrastructure of the online advertising industry.

What is AdTech?

AdTech, short for advertising technology, describes the software, tools, and systems that enable the buying and selling of digital advertising. AdTech allows advertisers to segment their audience, buy online ad space, serve up ads, and analyze their performance. 

Buying and selling online advertising is a complex process, involving a network of advertisers (brands with content to promote), publishers (sites or apps with ad space to sell), and intermediaries. AdTech brings all these players together, providing the tools and platforms they need to negotiate and run campaigns.

AdTech vs MarTech: What’s the difference? 

It’s easy to confuse AdTech with MarTech (you guessed it: marketing technology), but there are several clear differences. MarTech is an umbrella term that covers all marketing technology products, from podcasting to content management to social media management platforms. You can think about AdTech as one branch of the big MarTech tree.

In-house marketing teams build a stack of MarTech platforms to help them communicate directly with leads and customers through email, social media, and their website. However, they may not play a hands-on role in the bidding or placement process for online advertising. 

Instead, AdTech platforms, often directed by agencies, act as an intermediary to automate the ad-buying process and purchase audience impressions on behalf of a company. 

What are the benefits of AdTech to advertisers?

As online advertising has grown more complex, new tools and solutions have emerged to help advertisers manage and measure their campaigns. AdTech enables advertisers to run campaigns across channels, reach specific audiences, and analyze performance. 

Here’s how AdTech can save you time and help you optimize digital campaigns. 

1. Automation and scaling

Before AdTech, advertising managers had to manually research, select, and approve individual ad slots or placements. Now, brands can use automation, including AI and machine learning, to buy ad space and optimize campaigns based on real-time results. 

In short, AdTech tools have made it easier to launch campaigns at scale without a large marketing team.

2. Optimized ad spend

AdTech enables you to identify and reach a precise demographic, so you don’t waste your budget on general advertising that may or may not get to your ideal audience. 

3. Cross-device tracking

With AdTech, you can run omni-channel campaigns across devices. This works by recognizing a user based on their email address or cookies and matching them to other devices. Once a match is made in the network, ad networks can deliver re-engagement ads to give consumers multiple touchpoints. Cross-device tracking also enables better analytics, giving a fuller picture of the customer journey across devices.

4. Speed

Since AdTech can put campaign collateral out to bid in fractions of a second, you can launch a relevant campaign quickly, cutting out lengthy negotiation and placement. This brings you brand exposure, leads, and sales in a shorter time frame.

Programmatic advertising: The core of AdTech

AdTech is essential for programmatic advertising — an automated ad-buying process that allows advertisers to buy access to precisely segmented audiences in real time. Programmatic has been dubbed the future of online advertising: Allied Market Research valued the programmatic advertising industry at $451 billion in 2021, and estimated it will grow a further 36% by 2031. 

Here’s how AdTech makes it all possible:

1. The advertiser engages an ad network to start a campaign. Through a demand-side platform (DSP), they tell the market what the advertiser is looking for: their desired audience and number of impressions. 
2. The advertiser delivers their ad content (primarily display, video, social, and audio) to the network.
3. Meanwhile, the publisher  uses a supply-side platform (SSP) to list their available ad space (inventory). 
4. The ad exchange connects the two sides, and uses real-time bidding (RTB) to run an open auction for ad content. The SSP bids on ad content on behalf of ad networks and publishers. Auctions take just fractions of a second.
5. The winning bidder publishes the ad on their platform, and shares analytics back to advertisers through the ad networks.

All of the various intermediary parties and infrastructure used in programmatic advertising can be described as AdTech. We’ll explore them in more detail below. 

The AdTech ecosystem

To help you understand the complexities of AdTech, we’re going to unpack each of the different components that make up the AdTech ecosystem. 

Agency trading desk (ATD)

This is the part of an advertising agency that handles media planning and buying on behalf of clients. While brands can manage this directly through a DSP, ATDs offer expert guidance and agency buying power. Since they represent many clients, ATDs can work with multiple DSPs and negotiate in bulk to bring prices down.

Demand-side platform (DSP)

A DSP is an automation platform that allows advertisers to bid for, buy, and place online advertising. It lets advertisers manage multiple ad exchange accounts through a single interface and make real-time changes based on campaign performance.

Supply-side platform (SSP)

An SSP is a platform that manages a publisher’s ad inventory (the advertising space it has available) across ad exchanges. SSPs help publishers sell and manage their inventory at scale, earning revenue through real-time programmatic selling. 

Ad network

Publishers manage their inventory and earn revenue directly through ad networks. An ad network pools together bids and inventory from multiple exchanges to mediate sales between publishers and advertisers. Ad networks use algorithms to match advertisers with publishers that best fit their target audience.

Ad exchange

An ad exchange is the technology that brings together the DSP and SSP sides of programmatic advertising in a neutral and transparent environment — similar to how the stock market connects buyers and sellers. It’s essentially an open pool of impressions that uses algorithms and machine learning to facilitate the bidding process in milliseconds. 

Ad server

An ad server is a platform that stores a campaign’s creative assets, selects which version to serve to the user, and collects data about the campaign performance. 

Data management platform (DMP)

A DMP is a centralized database that collects, stores, and deploys user data for online advertising. DMPs collect data from multiple sources to build a profile of a user’s demographics, interests, and behavior online.

AdTech trends and challenges

The AdTech industry has grown and matured over the past twenty years, adding new technology and providers to make ad buying and selling faster and more efficient. During that time, the technology has adapted to reflect user preferences and an ever-changing regulatory environment.  

Let’s take a look at the top trends and challenges shaping AdTech today, and how the landscape could evolve.  

1. Privacy and data security

Programmatic advertising was largely built on cookies for matching IDs and re-engagement. However, consumers and regulators have mounted opposition to cookies and cross-device tracking due to privacy concerns. Ever adaptable, the AdTech industry has been developing alternative tracking methods that will still allow advertisers the data and analytics they crave — without compromising user security.

First, Apple implemented its app tracking transparency (ATT) framework, limiting the data available to advertisers. Next, Google announced it would eliminate its dependence on third-party cookies by 2024. Now, advertisers are braced for more change as Google, whose Android advertising is heavily based on Google Account ID (GAID) tracking, prepares to phase out GAID in favor of Privacy Sandbox. 

Starting in 2024, Google will transition a portion of its users to Privacy Sandbox. Instead of recording and storing individual behavior, Privacy Sandbox pools users into anonymized groups with similar interests and serves them ad content based on their group demographics and interests. Google will seek input from advertisers and developers throughout the transition process, as it attempts to protect customers while giving advertisers the insights and impressions they want.

2. CTV measurement

Streaming reigns supreme: 87% of U.S. households now own at least one connected TV (CTV) device. CTV devices include smart TVs, streaming boxes, and connected video consoles.

With streaming comes the opportunity for ad networks to deliver targeted video ads between shows, rather than linear ads for a general audience. CTV offers advertisers the chance to reach valuable audiences based on their interests, demographics, geography, and time of day. 

In addition to targeted brand exposure, CTV offers powerful measurement options for advertisers. With cross-device data, advertisers can track CTV-to-mobile attribution to measure app installs and post-install events in a customer lifecycle. And in today’s economic climate, it’s more important than ever to understand the true impact of every marketing dollar spent. 

3. In-game advertising

Another fast-growing trend area in AdTech is in-game advertising. While mobile games soared in popularity during the pandemic, the buzz has died down and gaming app marketers are going all out to boost user acquisition. Global ad spend for gaming app installs totalled $26.7 billion in 2023.

Watching a video ad to get another life or a reward is just one example of how in-game advertising works. This partnership benefits both advertisers and publishers, though app developers need to balance in-game ads with user experience. AdTech facilitates bidding and delivers ad content to apps, just as it does to websites and video platforms.  

4. DOOH advertising

If you saw a billboard near your office, chances are that an ad rep worked directly with the billboard owner to manually select each billboard placed in your city, street by street. AdTech can seriously streamline this slow, manual process. 

Experts value the global DOOH (digital out-of-home) market at $18.8 billion and predict growth of 11.6% by 2030. With programmatic advertising, advertisers can launch a DOOH campaign at any moment. They can also target audiences with specific factors like weather or time of day for a powerful impact.

Key takeaways

• AdTech is the infrastructure that supports programmatic advertising – the future of digital advertising. 
• With programmatic buying and selling, advertisers can automate the entire ad delivery process, gather detailed user insights, and bid for the most relevant ad placements in real-time.  
• AdTech allows brands to launch campaigns faster, scale quickly with automation, and optimize their ad spend with more precise targeting. 
• AdTech companies are adapting to changing user preferences and regulations, making changes that embrace customer privacy and limit tracking. Initiatives like Google’s Privacy Sandbox reflect the shift away from tracking with cookies. 
• Alongside in-game ads and DOOH, CTV is a powerful AdTech tool that allows advertisers to reach their ideal audience through smart TVs, gaming consoles, and streaming devices. CTV offers precise targeting capabilities, interactivity, and measurable results, making it an attractive option for brands wanting to stay ahead of the curve. 

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Cost per click (CPC) is a term used in paid online advertising to demonstrate what an advertiser pays every time his/her ad receives a click.

What is CPC?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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In a pay-per-click advertising model, advertisers pay the publisher (the party that owns the ad space) only when someone clicks on their ad. Your cost per click (CPC) is the amount you pay for each of those clicks. 

With spending on digital advertising projected to reach 836 billion dollars by 2026, brands want to know their investment is paying off. Clicks are a good indicator that your ad has captured attention, so this model means you’re paying for action, rather than spending money on passive views. 

Keeping track of your CPC is vital to get the most from your ad budget, but there are various factors that can influence it. Let’s find out how it works.

How to calculate CPC

You can calculate your CPC using the following formula: 

Let’s look at an example.  

Hotels.com decides to advertise in the British Airways app. Once someone has completed a flight purchase, they receive an ad offering them hotel deals in their destination of choice. Hotels.com paid British Airways $5,000 for their ad campaign, and received 20,000 clicks over the course of the campaign. This brings their CPC to $0.25.

Benefits of using CPC

CPC is one of the most widely used metrics — here are some of the reasons why. 

1. Control your costs

The CPC model offers value for advertisers, because you only pay the publisher when your ad is actually clicked on. And you can set daily limits so that you don’t go over budget. 

2. Understand ad performance

The number of clicks your ad receives is a good indicator of how well it’s performing. If it’s on the low side, you can quickly take action to change or stop the campaign, protecting your budget.  

3. Focus on an engaged audience 

Measuring clicks is important because, unlike impressions, they show a level of engagement from a user. This makes them a better indicator of intent which can lead to conversions further down the funnel. 

4. Maximize your ROI

Pay-per-click campaigns are a big part of online marketing, so you want to get your money’s worth. Understanding what each click costs you, and making sure you don’t overpay, is vital to protecting your bottom line and getting a solid return on your marketing investment. 

Challenges of using CPC

While CPC is certainly popular, it’s not all roses and there are some drawbacks to be aware of.

1. Costs can be high

If you manage to run a successful campaign with a high click-through rate, then you could see a large bill at the end of it — particularly if you’re using competitive search terms. Be sure to keep an eye on your campaign, your conversions, and your daily CPC budgets to make sure you stay profitable. 

2. Clicks don’t mean conversion 

Clicks do indicate interest, but they don’t always translate into paying customers. To boost your chances, make sure the content in your app or on your site is top quality. It should align with your advertising and clearly sell the benefits of your product, making it irresistible. 

3. Every click counts (even if you don’t want it to)

With CPC, you don’t only pay for “good” clicks (users with a genuine interest in your brand). You’ll also pay if someone clicks by accident, or, worse, for fraudulent activity. If fraudsters repeatedly click on your ad, you’ll be charged but see no conversions in return. 

How does CPC work?

Some campaigns have a fixed price per click, which is negotiated in advance between the advertiser and the publisher. 

Alternatively, pricing can be based on a bid. Here the advertiser tells the publisher the maximum they’re willing to pay per click, and how many clicks they’re looking to achieve. 

It then gets a bit more complicated. In Google Ads, for example, CPC is calculated as follows: 

Let’s explain these new terms.

Quality score

Think of your quality score like a credit score. Just like your credit score will affect your ability to apply for a credit card, your quality score will affect your CPC. 

Your quality score will depend on many factors, including: 

• Keyword relevance
• Click-through rate
• Historical performance 
• Landing page quality and relevance 

The higher the bid and quality score, the more likely your ad will appear in front of the right audience. You CPC will never exceed your maximum bid. It may be the same or lower, but never more.

Ad rank 

Ad rank is used to determine where on a search page your ad will appear (if at all). There are multiple factors that go into the ad rank, for example the quality of your ad at the time of auction, the bid amount, and your position relative to your competitors.

The price per click varies depending on the vertical. For example, keywords for legal services often demand the highest costs. Financial and other professional services like insurance aren’t far behind. That’s because there is a lot of competition for these keywords which are also relatively niche. 

The price per click varies depending on your industry. For example, keywords for legal services often demand the highest costs, closely followed by financial and other professional services. That’s because there is a lot of competition for these keywords which are also relatively niche. 

Your ad rank, quality score, and maximum bid combine to determine what the CPC will be. 

CPC bidding strategy

If you’re bidding on search terms to generate clicks, you have two options: manual or automated bidding.

Manual bidding means you can fix your maximum CPC yourself. You can set a budget for each individual keyword, and adjust it as needed, giving you complete control. While this has its benefits, it can be time consuming and hard to scale up.  

Automated bidding uses AI to take out the manual effort, setting bids for you based on your campaign goals. In Google Ads, for example, you can set targets like “Maximize clicks” or “Maximize conversions”. This approach saves you time and enables better audience segmentation and scaling than manual bidding. But it does require a good amount of historical data for the algorithms to be effective.  

What’s an average CPC? 

CPC varies hugely across verticals and formats. In 2023, the average CPC for Google Ads is $4.22. As mentioned earlier, ads for legal services cost much more (over $9), while in other industries it can be as low as $1.55.

Even among social media platforms the cost can vary significantly, with LinkedIn and Instagram typically more expensive than X (Twitter) and Facebook. There are various reasons for this: for example, LinkedIn has the advantage of reaching a targeted professional niche, while Instagram is keen to attract high-value advertisers prepared to pay a high CPM.  

As always with social media, the best strategy is to know your audience and invest in meeting them where they are, rather than trying to be everything to everyone. 

CPC vs other metrics

CPC shares similarities with various other marketing metrics. Let’s untangle some of the acronyms. 

CPC vs CPM 

CPM means cost per mille — in other words, the cost of displaying your ad 1,000 times (known as impressions). 

CPM is often used when a brand wants to increase awareness and engagement. The focus is on visibility, rather than specific actions (such as clicks) which carry a higher cost. However, if your goal is to drive conversions then you’ll be more interested in your cost per click. The publisher may have to serve far more than 1,000 impressions to reach the desired number of clicks. 

CPC vs CPA

CPA stands for cost per action, or sometimes cost per acquisition.

Isn’t a click an action? Well, yes. But CPA can cover various actions depending on your campaign goals, for example: 

• Installs 
• Level passed 
• Registration completed
• In-app purchase 

CPA is a target agreed between the advertiser and the publisher before the start of a campaign. Not to be confused with eCPA, which is the effective CPA and a measure of the actual results of the campaign.

CPC vs PPC

PPC stands for pay per click. If this sounds similar to cost per click, it’s because they’re two sides of the same coin. 

PPC is a marketing campaign strategy, whereby marketers agree to pay a certain amount to the publisher whenever their ad is clicked on. (You can see this in action on Google, where the first few search results have the word “Ad” next to them.) CPC is used on the campaign measurement side, to show the cost to the advertiser of each individual click. 

CPC vs CTR

CTR stands for click-through rate: the proportion of users exposed to an ad who actually click on it. Both metrics focus on clicks, but while CTR can indicate how well your ad is resonating with your audience, it doesn’t tell you anything about the cost. 

CPC vs CPV

CPV stands for cost per view. If you’re running video ads, this lets you calculate the cost of getting one person to watch your ad to the end. Unlike CPC, this measures passive views rather than actions (clicks), making it more suited to awareness campaigns. 

CPC vs CPI

CPI is your cost per install, a metric used in acquisition campaigns to calculate what you have to spend to win each new user. The more users you attract, the more effective your campaign and the lower your CPI. It’s similar to CPC in that they both involve users taking action, but ad clicks don’t always translate into those all-important installs.  

CPC vs CPL

CPL stands for cost per lead. A lead isn’t a customer — yet — but they’ve expressed a definite interest in your service, for example by completing an online form. Whereas users might click out of curiosity, boredom, or just clumsy fingers, a lead has serious intent. CPL is most used for high-value subscriptions and professional services.  

How to lower your CPC 

Clearly, paying less for your clicks will benefit your budget. So how can you keep your CPC under control?

1. Improve your quality score

The fastest way to lower your CPC on search engines is to improve your quality score. 

Typically, a higher quality score receives a lower CPC. Maintaining a quality score of 6 or higher can unlock discounts of 15 to 50%. Ensuring your ads are highly relevant and your landing page is top quality will help. 

2. Continually refine your audience and keywords

As with any marketing, CPC is all about reaching the right audience. After all, the goal of the ad is to have them click through and progress towards converting. 

Refining your audience and keywords helps you to be as specific as possible with your targeting. Cheaper isn’t always better — a higher-priced search term might deliver better results, but you may want to balance it with some lower-budget options. And remember to remove keywords that are no longer relevant or haven’t delivered the desired results. 

3. Expand your reach

Through your keyword research, try to discover new and valuable avenues for clicks. You can also expand into new target audiences, geo locations, or advertising channels to try and expand your reach. 

4. Adjust your bids based on key criteria

As part of ensuring your ads are properly targeted you can adjust your bids to focus on specific locations, time periods, and devices. Understand which combination of factors brings the best results and adjust your bids accordingly. In turn this will increase your quality score and further decrease your CPC. 

5. Use A/B testing

For display ads, experiment with different versions of your creative to see which delivers the best results. An ad that drives more actions will be deemed more relevant, resulting in a lower CPC.

6. Prevent fraud

As mentioned earlier, click fraud can cost you dear. Google Ads has some safeguards in place, but you can always do more to stop your ad budget falling into the wrong hands. 

Keep a close eye on your clicks and your budget — a flurry of clicks from the same IP address could signal someone up to no good, and you can have it blocked. Consider investing in a fraud protection tool to detect and block criminal activity across your mobile marketing campaigns.   

Key takeaways 

1. In a pay-per-click advertising strategy, CPC tells an advertiser how much they’re paying the publisher every time a user clicks on their ad. 
2. CPC can be fixed, or you can set it by bidding. Bidding may be manual (where you set keywords yourself) or automated (based on AI). 
3. Clicks are a good indicator of engagement, so you’re paying for a relevant audience. CPC enables you to keep an eye on costs and protect your ROI. 
4. That being said, clicks don’t always lead to conversions, and they can be vulnerable to fraud. Keep an eye on your daily budgets to ensure you stay profitable.
5. Average CPC varies greatly depending on your industry and the platform you’re using. Figures tend to be highest for professional services, where keyword bidding is very competitive. 
6. CPC shouldn’t be confused with other marketing metrics, such as CPM (which is useful for awareness and engagement) or CTR (which indicates the effectiveness of your creative). 
7. To lower your CPC, try to improve your ad’s quality score. Refining your audience and keywords, expanding your reach, and regularly adjusting your bids will also help — and always be alert to fraud.

Mobile marketing dictionary from A-Z

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