why-do-cost-metrics-change?

Best Practices

James Haslam by James Haslam | November 12, 2020

App marketers beginning their career will quickly run straight into a spreadsheet or dashboard with a broad range of metrics. Understanding which matter is a surprisingly difficult task. Catch-all questions like, “How relevant is IPM to me?”, “What’s the importance of LTV?”, and “Should I be focusing on retention?” hide the truth that the significance metrics differ depending on the app, business model, and companies’ growth stage.

One metric mobile marketers turn their attention on is cost per install, or CPI. Knowing how much an install costs allows marketers to estimate how much budget an upcoming campaign needs. But CPIs are just the start of the acquisition chain—with more meaningful KPIs such as LTV or ROAS to follow. It’s important not to place too much emphasis on this metric: after all, an install does not necessarily convert to a deeper funnel event or further acquisition. However, new marketers may want to know what’s behind the constantly changing costs they experience day-to-day.

There are several reasons why costs to acquire users fluctuate. This blog details the biggest factors to give new mobile marketers insight into these changes, and how they learn to predict these shifts when planning for 2021.

How Users Affect Cost Metrics

App users are often the first factor that marketers would attribute to rising and falling costs. The logic is this: demand, or the number of users who interact with advertising and download apps, will push costs up and down depending on where receptive audiences can be found. There are several elements of demand that play a part in determining cost:

  • User numbers: The sheer amount of reach a certain advertising source leads to larger or smaller costs. The more users, the cheaper it could be to reach them.
  • User quality: Costs can fluctuate depending on what certain audiences can be counted on to do. Users that lead to high retention rates, more in-app purchases and more ads clicked are all characteristics of more-expensive-to-buy inventory.
  • Popular user segments: Certain audiences are more attractive to some categories than others. For example, the Mobile Marketing Association points out that “the majority of the mobile gaming audience is made up of women [who] use a greater variety of games”. So, gaming marketers may be focusing their efforts on female gamers. By eliminating male gamers, costs increase to reach a focused audience.
  • Penetration by country: Users in different countries have more smartphones than others, and that could either mean cheaper (or more expensive users) depending on what you want out of a campaign and the quality of users per locale.
  • Seasonality: Time of year can have a significant effect on inventory pricing, particularly around holiday events. For example, it costs much more to market your e-commerce app around Christmas, and the holiday shopping season that leads up to it, than at any other time of year.
  • World events: Political events, such as national elections, usually result in extra costs to run campaigns alongside.

These elements showcase just how volatile demand can be. However, marketers should be wary of how much they estimate the users as influential over cost fluctuations. They are just a slice of the pie.

How Advertisers Affect Cost Metrics

Advertisers play an outsized role in the network effects of cost metrics. “Spend profiles” (the makeup of each individual advertisers’ campaigns) can collectively disrupt an entire industry’s cost calculations.

  • The influence of big advertisers: The larger the brand, the more likely a hit to cost when they begin (or end) a campaign. If ad dollars flood a market, it can be more costly to buy up available supply. If they pull back, costs may decrease (or increase if the supplier cannot replace the loss easily).
  • Creative formats: Costs vary depending on the size and space a creative takes up, and what kind of format it is. A video, for example, will be more costly than a banner ad. If a particular advertiser dominates a single format, prices can rise dramatically.
  • Campaign goals: Costs also vary depending on whether the campaign aims to acquire users (CPI), or only pay out if a user completes an event (such as registering, or making an in-app purchase, known as CPA).

How Publishers Affect Cost Metrics

One of the biggest factors in shifting costs are the suppliers themselves. Though marketers will look for the best value, the definition that decides ‘best’ is different from advertiser to advertiser. Some publishers offer retargeting, or specialize in certain types of ads or users, or even differ in how they handle their bidding process. These ultimately affect pricing just as much as users and advertisers do.

  • Bid management: How a platform manages its auctions can play a major factor in cost fluctuations. For example, Google’s move to a first-price auction led to variations in costs after the change.
  • Increases or decreases in supply: Big apps come and go, and even the most loyal userbase can prove surprisingly fickle. Any shift in user numbers has an effect on pricing, whether there’s a new hot app surging the charts, or a once-popular IP that’s receiving less interest from users.
  • Increases or decreases in supply per network: Relating back to the first point on our list, publishers are limited by the amount of inventory they have on hand. For example, the more apps they have access to, often the cheaper it is to reach them. 

There are a whole host of factors at play when it comes to cost pricing, many of them outside of the control of an individual advertiser. It’s important for marketers to know when costs could rise and fall to budget effectively, but equally imperative to understand how much of it is out of the hands of a single brand. 

If you want to know when costs can fluctuate, Liftoff has a resource library packed with insights on cost fluctuations. First, take a look at our Mobile App Performance Tracker for weekly updates on cost metrics. For a deeper dive into cost data, our resource hub has you covered with reports on gaming, shopping, finance and more. Subscribe to our mailing list to get updates into your inbox in the sidebar.