Demand Curve - Growth Newsletter #215

The Growth Newsletter #215

It’s not all about the CPM and CPC

It appears to be COVID season. Everyone seems to have it (including me).

I hope you've so far dodged it!

Today, we'll dispel a common misconception.

– Neal

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It’s not all about the CPM and CPC

Insight inspired by Barry Hott's old tweet.

There’s a common mistake that new advertisers make.

They unknowingly assume that all traffic is equal.

They focus too much on CPMs (cost per 1,000 views) and CPCs (cost per click) and not enough on how much they make from their ads.

For example, say you have two ad campaigns:

1. Campaign 1: $10 CPM, $1 CPC.
2. Campaign 2: $30 CPM, $5 CPC.

In other words, Campaign 2 costs 3x more for impressions and 5x more for clicks!

Campaign 1 will surely make you five times as much money, right?

After all, if your conversion rate is 2%, shouldn’t a conversion cost $50 for one and $250 for the other?

Nope.

In many cases, the $5 clicks perform better.

Here’s why:

1. The ad channels know a lot about people. 

They know a lot about the apps you use, the sites you visit, and the ads/posts you read, click on, and share. They know what you find interesting. And they know when you’re on the cusp of a buying decision.

Imagine you’re Meta—a public company trying to maximize shareholder value and  let Zuck buy more of Hawaii and custom Porsches—and you determine that a user:

1. Is a high-income earner or represents a business,
2. Is prone to buying products after seeing an ad,
3. Is on the cusp of purchasing an expensive product, or
4. Has a behavior and interests profile of a typical customer.

Wouldn’t you also charge as much as you possibly can for their click?

The more confident they are that a click will lead to a conversion, the more confident they are to charge proportionally more for it.

2. Not all placements are created equal.

Meta has a ton of different places where it shows ads.

Some placements are known to be the best:

• FB/IG feed
• Reels
• Stories
• Explore
• Marketplace (when appropriate)

And some are known to be lower quality:

• Audience Network
• Right Column
• Messenger
• Instant Articles

Meta will charge you less for 1,000 views of a Right Column Ad than an Instagram Reel or Story.

But I bet conversion performance will be a lot worse.

In short, focus on CPAs and ROAS

If the CPMs or CPCs are cheap, there’s probably a good reason why.

Ad channels use an auction system to sell people’s attention to relevant advertisers. If their attention were worth a lot, they’d charge a lot.

Cheap traffic is likely:

• Not paying attention
• Not likely to click
• Not likely to buy
• Not actually interested

That being said if you’re one of those rare founders who has something truly novel, exciting, and enticing to a broad range of people.

One of those rare products that immediately intrigues basically anyone.

Then you can go for bargain-bin traffic.

Sadly, the more expensive traffic is often the better option for the rest of us.

Ensure you have great creatives, landing pages, and funnels to take advantage of the expensive traffic—otherwise, it’ll get very expensive very quickly.

Check out our free Growth Guide as a tactical overview of all things Growth.

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Thanks, everyone!

Neal O'Grady

Justin Setzer