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Campaign optimization: The relationship between CTR, CPC and CPI

The concepts in this article

  1. CTR (Click-Through Rate): Click-through rate per thousand ad impressions. If the ads is displayed 1000 times and has 50 clicks, the CTR is 5%.
  2. CPC (Cost Per Click): The cost that Advertisers pay for each time users click their ads.
  3. CPI (Cost Per Install): The cost that Advertisers pay for each time users download/purchase their product/app.
  4. CVR (Conversion Rate): user conversion rate from interactions on the ad, the interactions here can be clicks, views, …
  5. Advertiser: The campaign owner, spending money to run ads for the product, in this article is an Android app.
  6. Publisher: ad placement provider, be it AdMob app publisher or YouTuber / Blogger, who make money from Adsense ads.

The truths need to be revealed

  1. Publisher: Is Asia’s eCPM low?No
  2. Advertiser: Low CPC won’t be able to target US, UK users?
    It depends on how handsome you are

You will understand why there are seemingly paradoxical answers.
You will understand the two most essential relationships of optimizing a global campaign.
At the end of the article, I will discuss more about these two questions.

“If you know the enemy and know yourself, you need not fear the result of a hundred battles” — Sun Tzu

A. CTR affects the priority of the ad and CPC

Because Google ads are mediated to maximize Publisher profits. Therefore, ads with higher CPMs will be given priority (Publishers will receive higher eCPM, more money).

If your ads has a high CTR (high performance), your CPC will be minimal because the CPM is high enough to bring your ads to a high priority during the mediation process:
Higher CTR => Higher CPM => More impressions => CPC decreases

If your ad has a too low CTR (poor performance), your CPC will be adjusted incrementally to improve the CPM to help your ads doesn’t lost impressions:
Lower CTR => Lower CPM => Less impressions (1)

Due to process (1), in order to prevent ads from being hidden, the CPC is increased:
(1) => Increased CPC => Increased CPM => Increased impressions (2)

Why is your ad not showing, not spending money?

In the process of (2) your CPC is adjusted incrementally until the CPM is high enough so that your ad is not obscured by other ads with higher CPMs.
But if the CPC reaches the Daily Budget threshold and the CPM is still not competitive enough, your ad will not show:

(2) => CPC exceeds Daily Budget => CPC stops increasing => Ads cannot be displayed

B. Conversion rate (CVR) affects CPI

After you understand how the CTR affects CPC and ad visibility. We need to understand more about the relationship between Conversion Rate (CVR) and CPI.

Every time a User clicks your ad, you must pay for every valid click. These clicks are considered to be interactive. There are actually many types of interactions, so a CVR in 10% statistics doesn’t mean that the number of conversions equals 10% of Clicks. Which is equal to 10% of the total interaction. However, to make things easy to understand and clear, we agree that CVR is alluding to Click interactions.

Valid clicks and higher conversion rate:
Higher CVR => Lower waste of Click => Lower CPI

Click valid but user not buy/download, it is considered as waste. The more waste of click (CVR is lower), the higher the CPI:
Lower CVR => Higher waste of Click => Higher CPI

Will publishers suffer when an advertiser optimizes for CPC?

The answer is no.
In the relationship between Advertiser — Publisher — Customer when Advertiser optimizes their ad or Publisher optimizes ad unit, all three parties have benefits. (win-win-win)

If an Advertiser optimizes their ad, it will result in a higher CPM => Publishers get higher eCPM => Publishers can earn more money

Conversely, if the Publisher optimizes the ad unit leads to get better CTR and demographics => Advertiser get higher CTR and CVR => Advertisers increase profits and reduce costs.

Customer is getting a better experience. Customer viewing will be less “forced” to see ads because Publisher does not lack money. When Customer see ads with content that accurately describes what they want. Customer click and are directed to quality products. Not only saving their time but also giving what they expects.

C. Answers of 2 questions at header

For Publisher: Why is Asian eCPM low?
Because the campaigns in Asian is less, the number of ads is always insufficient. Therefore, ads with low CPMs are “dredged” and delivered all.

For Advertiser: Low CPC will not target US, UK users?
As stated, Google mediates and prioritizes advertising with the highest CPM. Therefore, ads with high CTRs and high CVRs will help optimize CPC.
Adjusted CPC only increases if the CTR doesn’t help the ad’s CPM be high enough to show.

With a 50% CTR and $ 0.04 CPC, your ad’s CPM is already $ 20, which means that the eCPM that Publisher can earn when running your ad will amount up to $ 20 (due to depends on the ad unit’s CTR). That’s an eCPM higher than the US UK Canada average on iOS combined(http://ecpm.adtapsy.com). It’s great for your ad to receive Customer from anywhere with a maximum CPC of $ 0.04.

However, if your CTR is 1%, with a CPC of $ 0.04, your CPM is only $ 0.4, which means that the eCPM that Publisher receives when running your ads will probably be less than $ 0.4 ( because it depends on the CTR of ads unit). That is an eCPM lower than the Cambodian average (http://ecpm.adtapsy.com). Therefore there won’t be many opportunities for the ads you show, unless you increase your CPC.

Notes

Hopefully the article will help you with the most specific and understandable perspective to be able to manually optimize your campaign.
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