The CTR Riddle
The original version of the material can be found on Mobile Dev Memo, a website dedicated to the mobile industry, run by Eric Seferth himself, author of the book Freemium Economics. Eric Benjamin Seufert, head of Wooga Marketing Department, told about what CTR is and what difficulties you can face when working with it on the pages of Mobile Dev Memo.
CPI Issues
The cost of a mobile advertising campaign is often estimated based on the CPI/CPD price. However, sometimes they rely on other variables: the price of opening an application, achieving something in it, and so on.
Using CPI helps advertisers to adjust risks. So they can calculate the cost of adaptation (adoption costs) of each user as accurately as possible, and not guess how much their project will bring, starting from LTV.
(LTV is a marketing quantity, it describes how much money, in theory, a user can bring, and not how much it will take to launch). See. http://mobiledevmemo.com/ltv-for-freemium-products/But there is a caveat: advertising networks cannot moderate the volume of installations based on CPI.
They have no control over the advertisements used by advertisers, because publishers, as a rule, buy CPI through CPM (it is implied that they receive any set amount for 1000 secured advertising views).
That’s why CPI is also devoid of specificity.
Advertising networks cannot guarantee the exact number of installations at a given price, because they have no idea how many views sold at a fixed price are converted into installations.
In other words, an advertiser can buy a certain number of views at a specific price, but the number of installations with a given number of views is unpredictable, it can only be predictable.
Determinants of CPI
One of the determinants of CPI is CTR, that is, the percentage of people who click on an ad after seeing it. A high CTR means a high number of users who got to the store on the application page. If an ad is shown 1000 times and gets 100 clicks, its CTR = 10%.
Another determining value of CPI is the level of installations (install rate), or the percentage of people who installed the application after clicking on the advertisement. If the ad was clicked 100 times and the app was installed 10 times, install rate = 10%.
CTR depends on how the banner looks, but the same cannot be said about the install rate. After a potential user has entered the app store, his decision to install or not the product depends entirely on what he saw on a particular page (screenshots of the application, its rating, reviews from other users, and so on).
For this reason, CTR and install rate may show speakers with opposite signs.
A good banner (attracting the widest possible audience) can increase the CTR, but at the same time the install rate may fall. Here we are talking about the fact that CTR is not necessarily converted to installations.
Again, it is not a fact that the install rate will fall with a high CTR. N-the number of views can be easily converted into downloads.
Actually, this is the main mystery of CTR: how active should the advertiser’s pursuit of clicks be and how can the interaction between CTR and install rate be optimized?
The table below shows three scenarios:
The first scenario
- CTR doubles;
- install rate drops by half;
- The CPI does not change.
The second scenario
- CTR is doubled;
- install rate drops by 40%;
- CPI drops by 17%.
The third scenario
- CTR doubles;
- install rate drops by 60% (that is, the drop is greater than the CTR growth);
- CPI grows by 25%.
Obviously, the optimal CTR/install rate combination is the one that minimizes CPI on the scale of the niche of interest. For the same applications that are designed for a wide audience, an increase in CTR does not necessarily lead to a decrease in the install rate. But for niche applications with a small and very specific audience, creating accessible advertising can seriously affect the install rate (CPI will go up without an increase in installations).
The attractiveness of CTR is undeniable, but CTR optimization outside of working with install rate and CPI does not make sense. An increase in CTR may lead to nothing if the ad is uninformative (or even worse, misleading). Therefore, an optimization campaign cannot be carried out with a focus only on CTR: it requires a comprehensive strategy, the ultimate goal will be to minimize CPI and maximize profits, which in itself may hinder the increase in CTR.
