Today, there are more than 6.93 billion smartphone users in the world with the average individual spending more than 4 hours and 48 minutes per day on their mobile device. A majority of this time (88%) is spent using apps. With billions of smartphone users spending an increasing amount of time in apps, the potential for reaching new audiences through in-app advertising (IAA) is immense. But if performance marketers want to reach these IAA audiences efficiently, they need to put aside fixed models like CPA and align their pricing with programmatic media buying tactics.

The traditional school of thought is that, to minimize risk, the “safest” way to drive ROAS is by only paying for the conversion event. This approach is beneficial when working with a media buying partner that lacks extensive data or precise control over serving impressions. However, the world of programmatic advertising is different. Buying platforms have already committed to paying a specific CPM when an impression is served. Whether the platform translates that into CPA pricing for their partners is up to them. But a critical shortfall of a fixed CPA model remains: it assumes that a CPA accurately reflects the real value of each impression. This notion oversimplifies the complex terrain of user engagement into a single metric, often disconnected from actual revenue-generating events such as email submissions, app installs, lead form completions, and most other commonly used CPA events.

How a CPA Fixed Pricing Models Hurts ROAS

• No direct connection between acquisition and revenue: While a CPA is simple to manage and communicate, it does not take into account user quality. For example, an email submission does not guarantee that the user will make purchases or subscribe to a service. If acquisitions do not generate proportional revenue, then ROAS suffers.
• You aren’t buying the right user at the right price: If you buy a less valuable user at a fixed price, you waste ad spend. If you will only pay a fixed price for a highly valuable user, you may lose that impression to another advertiser who was willing to pay more.
• Challenges to scale and quality: When campaigns plateau, advertisers face the challenge of finding new channels or inventory sources to display their ads. Relying solely on a CPA model means you can’t adjust your bids in response to changes in user behavior, market conditions, or campaign performance, restricting your ability to scale and reach quality audiences.
• Misaligned incentives: When paying per acquisition, there may be less incentive for media buying partners to focus on quality. If CPA goals are hit but the ads are most effective at converting users with a low purchase propensity (i.e., low LTV), then advertising platforms might be incentivized to prioritize quantity over quality, leading to a higher number of low-value conversions that do not contribute significantly to overall revenue.

Understanding the dynamic CPM (dCPM) model

A dCPM model levels up how marketers purchase in-app inventory by adjusting ad spend dynamically. This means a campaign’s individual bids will change impression-by-impression based on the perceived value to the advertiser. This value could be based on the predicted lifetime value (LTV) of a specific customer, their propensity to make a purchase, or take any desired outcome. By pricing ads as close to the actual value of the impression ensures advertisers get the greatest value for their ad spend.

Despite the dynamic nature of a dCPM, advertisers still have full control of their budgets. Their DSP (demand side partner) can set bid caps and budget limits to help prevent overspending while still targeting impressions that back into their CPA goal.

The Full Potential of In-App Advertising with dCPM

• Better ROAS with cost efficiency: Advertisers can find cost savings through purchasing audiences at optimal prices and increase volume by having the flexibility to outbid competitors for highly valuable impressions. A dCPM model allows inventory to be valued on the predicted profitability of an impression for the advertiser. The cost savings of paying less for a lead that may be less valuable to the advertiser can be reallocated to acquire more valuable leads which allows for scale without significantly increasing costs.
• Reach better quality users: When bidding on a specific audience group, increasing the CPM can result in more conversions being generated from that audience. With a relatively higher CPM, the average cost of acquiring a customer can become more efficient when more conversions are achieved. As a result, advertisers can buy more expensive impressions that deliver better value, driving down the overall CPA.
• Aligned incentives: A dCPM pricing strategy avoids the misalignment caused by proxy events. When incentives between the advertiser and platform are aligned, both the advertiser and the DSP are motivated to achieve common performance metrics. This shared focus encourages the DSP to optimize campaigns ROAS targets that directly benefit the advertiser, leading to better overall campaign performance.

Proven Results

At LifeStreet, our machine learning models are powered by data from more than 2 million monthly leads. This data is used to predict how likely a mobile app impression will share similar properties with the advertiser’s most valuable users and take the desired action as defined by the advertiser (such as taking a survey, entering a sweepstakes, subscribing to a service, registering an email, providing personal information, etc.)

With a dCPM model, we’ve been able to maximize ROAS for our partners and consistently outperform CPA models. In one instance, we were able to achieve a 293% ROAS increase in 4 months and an 808% increase in lead volume over 9 months. In another case, we boosted ROAS by 136% for a partner. In both cases, we were able to use data to identify the attributes of a valuable user and then bid dynamically with a dCPM to pay more or less for an impression on a user-by-user basis.

Embracing dCPM: The Key to Accessing In-App Audiences

The majority of mobile ads are transacted programmatically. Unlike a fixed CPA model that can hurt ROAS when buying programmatically, a dCPM enables precise bidding by dynamically adjusting bids for each impression. With consumers increasingly spending their digital time within apps — a trend that’s only expected to grow — marketers cannot afford to overlook the immense growth opportunities that in-app advertising offers. The future of marketing is in-app, and a dCPM is the gateway to unlocking the full potential of this opportunity.