Cost Structure of Retargeting (Remarketing) Ads: CPC, CPM, CPA
Two questions I get asked a lot are:
- Should I allocate part of my marketing budget for retargeting ads?
- If I’m convinced that retargeting is right for my business, how much should I be spending on retargeting?
Well, if you want to be wise about your retargeting efforts you shouldn’t just blindly throw your ad spend around and hope that something sticks. You need to determine how much you want to spend and how you want to spend it.
If you plan ahead you can determine how much you should be spending to acquire a customer through retargeting and when you should pull the plug.
To help you with this, i’ve devised a cost-checklist so you can determine how much you should be spending on retargeting ads. In no way is this article comprehensive but it’s going to give you the basics needed to get started on retargeting. Let’s begin.
Here’s a breakdown of what I’ll be covering in this article:
- How much of your marketing budget should you spend on retargeting?
- The different ways you can be charged by your ad service provider: CPC, CPM, CPA
- Bid optimization: Where should you display your retargeting ads?
- Other factors to keep in mind with retargeting: Frequency Capping and Membership Duration
How much of your marketing budget should you spend on retargeting?
According to a recent study from Marin software, the majority of marketers are spending less than 10% of their ad budget on retargeting. This means you don’t have a lot of competition (yet) with your retargeting ads, compared to other channels, like Google Adwords.
The different ways you can be charged by your ad service provider: CPC, CPM, CPA
Determining how to set up the cost (CPC, CPM, CPA) can be tricky. You want to get the best value for the money you spend, but how are you supposed to pick?
Breaking down the cost…
When you utilize an ad provider they’re doing a lot of behind-the-scenes work to optimize your campaigns (such as choosing where your ads will show up). These ad service providers buy ad space (usually at CPM) and they will set their costs (those shown to you) to run ads across different websites. You will be sold retargeting ad space in one of three ways: CPC, CPM, CPA.
CPC (Cost-per-click): You’ll only be charged when someone clicks on your retargeting ad. You set up how much your max spend per click will be ie. $1/click, $2/click, and your ad will only be shown on the sites where it costs up to that target amount per click. This is a good route to go when the people who click-through on your ad are actually converting on your offer. However, if you notice that you’re getting a lot of clicks but they’re not actually converting on your offer, you’re wasting your money. If this is the case you should re-evaluate where you’re sending them. Did you set up an optimized landing page? Does the offer match the offer on your retargeting ad?
CPM (Cost-per-mille/Cost per 1000 impressions): With CPM, anytime your ad is shown 1000 times (whether they’ve actually seen the ad or not) across the web you will be charged a certain amount. This could work in your favor if you’re getting X number of clicks however, if your retargeting ad keeps showing up at the bottom of the screen and no one sees it (yes, this happens), it’s going to be a waste of money. You’re paying whether you get clicks or not. So although it may be more profitable if you’re actually getting clicks, if you’re not getting any then you’re wasting your ad spend. Some things to evaluate: Have you created an eye-catching retargeting ad banner? Have you created different sizes of banner ads so they show up on different parts of websites?
CPA (Cost-per-acquisition): This is how much it will cost for one person to convert on your offer. CPA is probably going to be higher than CPC or CPM but it will guarantee that you’ll be getting conversions for your retargeting efforts. If you show a retargeting ad for a dress someone was looking at and your retargeting ad is shown to them and they buy the dress, you will be charged. The thing about CPA is that it’s tricky to measure whether it was the retargeting ad that convinced them to purchase or they came back to purchase regardless of whether your retargeting ad was there or not. Retargeting companies will charge you as soon as someone completes a purchase even if it wasn’t because of the retargeting ad itself (ie they never saw it because it was off the screen). I recommend trying out CPC or CPM before going using CPA. If you’re optimizing your retargeting ads you should do well with CPC or CPM.
It’s always a good idea to test out different ad providers and see whether CPC, CPM or CPA will be best for you.
Bid optimization: Where should you display your retargeting ads?
In order to reach the right customers you need to know where your customers are. According to Google, 95% of a person’s time online is spent on content such as reading the news or their favorite blog (like the Wishpond one). Just because this is where people are, it doesn’t necessarily mean this is where your qualified customers are.
You can optimize your bids by determining which sites will lead to more qualified leads (those who have visited your pricing page) versus someone who had just read a single blog article. If you bid more aggressively on sites for people who are more qualified and interested in your offers you might have an initial higher spend but you’ll not only have more people click on your retargeting ads but more who convert on your offer.
Other factors to keep in mind with retargeting: Frequency Capping and Membership Duration
If you don’t set a frequency cap or limit your membership duration your ad will be shown as many times as possible until your money runs out. Don’t do this. If you’re new to retargeting you might think, the more times I show my ad the better, right? Wrong. Bombarding people with ads is going to come across as creepy and cost you unnecessary money. If they aren’t going to click on your ad within the first 30 impressions or so, they’re probably not going to.
Frequency capping: This is the maximum number of times you’ll show your retargeting ad. If you’re too aggressive it’s going cost you and make people hate your business. I recently have been retargeted a minimum of 30 times per day by an undisclosed company and I’m personally never going to do business with them. Plus, the more your ads are shown, the higher your daily cost will be. If you aren’t limiting the amount of times your ads are seen you could be spending up to 20% higher than your daily budget.
Membership duration: This is the length of time you want to keep a person in an audience segment (based on the pages they’ve browsed on your website). Don’t just set this for as long as possible, limit it based on your buying cycle (the length of time it takes someone to purchase your product).
Why? A persons interest in your business will (generally) decay over time. If you want to sell to an individual company there is a set amount of time you can do this in. You can determine this length of time based on purchase data you have accumulated over time. For example, if you’re selling SaaS it could take 60-90 days for them to get all the information they need to make a purchase. After this time there’s a good chance they’ve either purchased your product, bought a competitors product or decided against it all together.
For example, according to Adroll this is how much it will cost for a 90 day membership duration.
If you have X number of Unique Visitors (UV) it’ll cost you $Y per week:
- 3,000 – 10,000 UV : $50 – $175 per week
- 10,000 – 25,000 UV : $175 – $450 per week
- 25,000 – 50,000 UV : $450 – $900 per week
- 50,000 – 100,000 UV : $900 – $1800 per week
If you want to find success in your retargeting ads you need to pay close attention to how much you’re spending. Making smart decisions about how you want to be charged and how frequently your ads are shown will not only keep your costs down but your customers happy.
Do you have any questions about the cost of retargeting? Which cost structure do you find works best for your business: CPC, CPM, CPA? Please, comment below.
P.S. Need help creating more engaging AdWords campaigns? Wishpond's Facebook Contest Apps make it easy to create sweepstakes, photo contests, Instagram hashtag contests & more. If you're looking for inspiration, check out our post Facebook Contest Ideas.