Why a Cost-Per-Engagement Model is the Future of Digital Advertising
Across the digital media landscape, there are several revenue models – each with their respective flaws.
The CPM model, in which advertisers pay a fee per thousand views of an ad, is the oldest method of digital advertising.1 Despite its popularity, the model often fails for several reasons.
For example, all-inclusive “view” counts include ads seen by bots, ads that aren’t viewable, ads that fail to load and ads that miss target audiences.2 All the above amount to wasted ad dollars – an estimated waste of $16.4 billion in 2017.3
“No other part of a marketer’s organization pays for technology this way,” said Michael Greene of Digiday. “IT, finance, HR, supply chain, et al., have long figured out that paying for value – not volume or effort – is best.”4
The CPC model, in which advertisers pay a fee per click of an ad, is equally faulty due to the simplistic nature of a click.5
Clicks don’t inherently shed much light on brand building or impact.
The CPA model, in which advertisers only pay for users who complete a transaction (such as a purchase or an account creation), tries to solve issues presented by CPM and CPC,6 but still falls short.
“If you optimize your ad spend based solely on the performance of the last touches, you are failing to incorporate key data points regarding the influence of the initial touch points on the purchase decision, resulting in you optimizing your campaign for sub-optimal results,” wrote ReTargeter in a 2012 blog post.7
Over time, content consumption habits evolve, triggering a correlating evolution in the way publishers create content.8 But, generally, digital ad strategies have lagged behind.
But one relatively new ad model that’s evolved and is showing promise? Cost-Per-Engagement.
What is Cost Per Engagement?
The cost-per-engagement (CPE) model is unique for several reasons, but namely: impressions, and some clicks, are completely free.9 Advertisers only pay when a user “engages” with their ad unit.
Generally, an engagement is a high-quality action.
In various situations, an engagement could be significant interaction time, an interaction (a tap, swipe or click) that extends an experience, or an act that leads the user toward participating in an experience that resonates.10
“Liking a brand on Facebook, for instance, is not a high-quality action. It can’t just be a product message with a price and [information about] where to buy,” said Ryan McLaughlin, chief strategy officer at Tribal Worldwide – an ad agency that serves H&R Block, PepsiCo and Pfizer, among other brands.11
Why Cost Per Engagement?
Advertisements that value engagement often translate to valuable placements and interactions, which can emphasize brand lift in ways that CPC and CPM models don’t.
“You get much better [ad] creative when you’re working with a CPE model,” McLaughlin said. “You’re forced to create a more engaging experience. And when you do, the value-add for the brand is much greater.”12
Part of the appeal? Rich experiences that resonate with users.
“Along with providing advertisers accountability, it shifts the focus toward creating rich ad experiences that connect with customers in a meaningful way,” said David Tokeim, SVP of media solutions at SayMedia.13
There are several KPIs that can quantify these advantages, further proving CPE’s value.
Cost Per Engagement Metrics that Matter
According to Innity, a provider of interactive marketing platforms, there are several ways a CPE model can boost a campaign.14
Because these ads will generally be placed at ideal locations, brand awareness is likely to spike. These types of ads urge users to mouse-over or otherwise interact in order to expand or share more info, and require prominent placement.15
From the advertiser’s perspective, CPE provides a relatively risk-free environment. They only need to pay when a user has a meaningful engagement with the branded unit. Similarly, users who choose to engage are already expressing a preliminary interest in the brand.16
Ad units with high engagement rates are also more likely to have high conversion rates, increasing chances of potential sales leads.17 Considering the above, advertisers’ return on investment using CPE is optimal, relative to other models.
A Chartbeat study reviewed 100,000 webpages over a one-week period, and determined the more time a user engaged with branded material, the more likely a user was to return.18
Chartbeat conducted a separate study that focused users’ ability to recall a brand. The results showed a positive correlation between engaged time and brand recall with a 95-percent confidence interval.19
Indeed, the CPE model is proving effective in the industry, as it emphasizes exactly what publishers and advertisers value the most.
1. Yamaguchi, Kohki. “Pay Per What? Choosing Pricing Models In Digital Advertising.” Marketing Land, 29 Aug. 2014.
2. O’Shaughnessy, Laura. “The High Price of Low-Cost CPMs.” Harvard Business Review, 24 Apr. 2017.
3. Handley, Lucy. “Businesses Could Lose $16.4 Billion to Online Advertising Fraud in 2017: Report.” CNBC. CNBC, 13 Apr. 2017. Web. 06 Feb. 2018.
4. Greene, Michael. “Ad Tech’s Got a Business Model Problem.” Digiday. N.p., 08 May 2013. Web. 07 Feb. 2018.
5. Nguyen, Joe. “Moving Beyond the Click – How Digital Advertising (Should) Work.” ComScore.com, ComScore, 6 Dec. 2010.
6. “What Are CPM, CTR, CPA and CPC?” Rakuten Affiliate Network, Rakuten.
7. Caroline. “When CPM Is Better than CPA.” ReTargeter Blog, ReTargeter, 26 Apr. 2012.
8. Hyrkin, Joe. “The Publishing Industry Isn’t Dead, But It IS Evolving.” The Next Web. N.p., 18 June 2014. Web. 07 Feb. 2018.
9. “What Is Cost Per Engagement (CPE)? – Social Experience Suite.” Social Experience Suite, 4 Mar. 2012
10. IAB Executive Working Group. “Defining and Measuring Digital Ad Engagement in a Cross-Platform World.” Iab.com. IAB, 5 Feb. 2014. Web. 7 Feb. 2018.
13. Tonkin, Sebastian. “New Pricing Models: Why Cost-Per-Engagement Can Benefit Advertisers.” Adotas, 27 June 2012
14. Innity, About. “Things You Need To Know About Cost Per Engagement (CPE).” THE INNITY BLOG., 4 May 2015.
18. Clement, Matt. “Why Is Time Engaged More Important Than Ever? • Nxtbook Media.” Nxtbook Media, 18 Jan. 2018.