The Battle of the Payment Metrics

It’s no longer front page news that the online advertising industry is pretty damn big, but here’s some stats that will show you just how big we are talking. In 2014, digital ad spend grew 14% year on year to a whopping £7.19 billion (IAB/PwC). It’s no sudden surprise that digital is at the front of marketers minds, as 84% will maintain or up 2015 spend and 38% plan to shift spend from traditional techniques to online (The Drum). In fact it is predicted that digital ad spend within the UK is set to outstrip all other traditional formats combined within 2015 (The Guardian).

So with such huge predictions and expectations, it all seems pretty rosy in cyberspace – advertisers are reaching their customers effectively and publishers are able to sustain a healthy business within a growing industry. However with everyone fighting for as big a slice of the pie as possible, the industry faces the age old debate of payment metrics.

Back in the early days, advertisers paid publishers on a CPM (cost per thousand impressions) basis, as this was standard to traditional advertising methods that marketers were used to, paying based on the number of consumers who viewed their ad. However as technology became more advanced, payment metrics started to become more performance focused.

First there came CPC (cost per click), which was fully adopted by Yahoo! and Google by 2002. But for almost a decade now, the CPC model has been majorly challenged within the marketplace by the CPA metric (cost per action).

This metric allows advertisers to promote through publishers on an almost risk-free basis. The metric has become so big that the IAB has even christened it with its own separate marketplace – Online Performance Marketing – which solely includes true affiliate marketing (CPA) and lead generation (CPL). And it turns out this industry is a fair chunk of the total digital ad industry. In 2014 advertisers spent £1.1bn on Online Performance Marketing; and it’s likely to keep growing, as advertiser ROI stands very strong at £15 per every £1 spent (IAB/PwC).

But we need to remember this is a relationship with more than one party involved. So how do the publishers fare working on this payment method? Do they reap the rewards or are advertisers just getting more bang for their buck?

More “publisher-focused” metrics, such as CPM, CPC or CPV (cost per view) for example, allow the publishers to better forecast their earnings on a campaign and also have a positive impact on cash flow for their business. We must not forget that publishers have KPIs too, and they will also be focusing on making campaigns work commercially. This is generally done in terms of EPC (earnings per click) and EPM (earnings per thousand impressions), as publishers put a monetary value on advertising space on their website or email newsletter for instance. In addition, we could ask what the role of the publisher should be. Is it a publishers’ duty to influence sales rather than actually close sales? Should the advertiser take the reins when a user comes over to their site?

So, what we need to ask ourselves as an industry is how do we make the relationship work? What is the perfect remedy for romance in the online marketplace?

As with any relationship – it’s all about negotiation, about meeting in the middle and finding an arrangement that works for both parties.

For advertisers to secure the premium publishers with a wealth of data, expertise and experience, they may need to run campaigns on a payment term which works for the publisher – whether that is CPC, CPV, CPI, the list goes on - to truly encourage longevity and scalability of the campaign. However, these publishers need to prove that they are delivering quality traffic and generating a successful, ROI-rich marketing campaign for the advertiser.

With good account management and some TLC, campaigns can be run on one of these more publisher-focused methods, but optimised to meet a target eCPA (effective cost per action) for an advertiser. This is simply done by taking the overall spend of the campaign (whether that is in terms of clicks, installs or video views), then dividing it by the number of actions which were generated; effectively equating to the cost per action the advertiser would have paid if they were working on a CPA model. The campaign even has the opportunity to run at below the CPA rate the advertiser may well have shed out for previously, but still works out for the publishers as they know they are able to scale up and are assured of their payment. A win-win situation; this almost hybrid solution allows both parties to work on metrics that work for them.

However all of that being said – there is no real champion when it comes down to the battle of the payment metrics. Different metrics work for different advertisers, publishers and campaigns. Therefore the aforementioned solution is by no means a rule of thumb, set in stone for everyone to use, every day of the week. What we should be doing as savvy marketers is continue to stay open minded; the beauty of the industry is that new ideas, channels and technologies come along all the time so we need to consider everything to keep the industry growing. The most important three-letter acronym to always remember is ROI, and to consider that both parties within the partnership will be measuring on this metric.

By Katy Ray, Clickwork7.