We tend to do quite a lot of our user acquisition on Facebook, among other channels. I am often asked about the difference of paying per impression vs paying per download, so I thought I’d write a post on the topic.
Lets start with the basics, Facebook advertising comes down to the following elements - Audience, Creative and Bidding and at every one point we are aiming to optimise the way that these work together to maximise the output of our budget.
So, on a high level, our funnel looks something like this:
In our optimisation efforts, we aim to optimise every step of the funnel. We iterate on the audience and creative combination to increase the click through rate (CTR), tweak the app store landing page and screenshots to increase the download rate, the app size and icon to increase the rate of the first run and so on until the final purchase of our product.
Let’s look at a quick example, for a campaign which has generated 100,000 impressions, with a CTR of 0.5% and a download rate: 20%.
With the above performance metrics 100k impressions will result in 500 clicks and 100 downloads and the cost in each case would be:
If paying $5 per download the cost is $500
In the case of $5 CPM the cost is also $500
So the cost will be the same either way.
As we optimise the campaign and test variations we may degrade or improve the performance metrics.
If we were to degrade them, for example if our CTR or download rates were to drop, then the funnel to the right of the impressions, starts to narrow:
So lets assume that an optimisation attempt results in the CTR falling to 0.25%, then for the same 100,000 impressions, the number of clicks will be 250 and the downloads 50 (at the same 20% download rate). So the cost, in each case, will will become:
At $5 per download = $250
At $5 CPM = $500
Effectively, as the number of impressions, is the same and therefore the CPM price remains the same, while the per download price will reduce, in-line with the reduction in downloads caused by the reduction of the CTR. In this case it would have been more advantageous to be paying per download.
If, however, in our optimisation efforts, we increase the CTR or the download rate, the funnel to the right starts to to widen:
So lets say that the click through rate becomes 1%, for the same 100,000 impressions, the number of downloads becomes 200 (at the same 20% download rate). So the cost, in each case, will become:
At $5 per download = $1,000
At $5 CPM = $500 (an effective price per download of $2.5)
If we then manage to double the click through rate again to 2% and also managed to increase the download rate to 25%, the number of downloads at 100,000 impressions would become 500 and the cost, in each case, becomes:
At $5 per download = $2,500
At $5 CPM = $500 (an effective price per download of $1)
In summary, when paying per impression, the cost will remain the same, regardless of how much we widen the funnel to the right, which is great for well performing campaigns, however any negative factors, for example reducing the download rate, will reduce our downloads, but not affect the cost.
In contras, when paying per download, as the funnel widens to the right, the cost will proportionally increase, but any negative factors, will reduce the cost, proportionally.
A strategy that works well, is to pay per download, while optimising campaigns and once a campaign starts to show the right CTR, to change it to a CPM basis. It is however important to actively monitor the performance to ensure that things don’t suddenly change, which is not unusual for Facebook, especially when there is an algorithm change.