The following situation might sound familiar: your business is doing well – conversion rate (CR) is higher compared to the same time last year, advertising price (CPM) is low, and return on ad spend (ROAS) is above expected. All of a sudden, customer acquisition cost (CAC) goes up, volume drops and nothing looks the same. A few things come to mind:
- This is an outlier and soon everything will be back to normal
- This is a new trend, we need to understand what happened and how to address it
- This is expected behavior, seasonality in the data
The worst thing that can happen to you is not detecting a new trend and missing processes that impacted it.
In this article, we’ll try to answer how the effects of virus COVID-19 impact behavior on social networks – from digital advertising and eCommerce points of view.
We want to analyze and understand if there is a new trend, “a new normal” that advertisers should get used to.
Hopefully, once you read this article, you’ll understand why your ads are underperforming, how to address that issue, focus on the improvements and get back on the old track.
There are three metrics we want to check – CPM, CTR and CR. In theory, it sounds reasonable to assume the following:
- CPM decreased – ads are cheaper as people are online more and Facebook serves more impressions
- CTR decreased – with more content and more impressions, users just click less and look for more relevant (covid-19 related) content
- CR decreased – as there’s an air of uncertainty, people are less likely to make a purchase
Of course, you might be the lucky winner selling face masks and your CR will increase – but you still want to address CPM or CTR changes on Facebook and within Facebook’s auction system.
The key thing to understand is how much did each of these metrics change: if CR decreased by 50% and CPM decreased by 50%, your CAC will remain the same. On the other hand, if your CPM went down by only 20% – you CAC will go up by 60%.
Understanding these numbers and manipulating them could make a huge impact on your business’s growth.
Our dataset consists of advertising data from Facebook, where we’ve analyzed millions of datapoints to try to understand what has been happening on the social media recently. In this report, we combine our own experiences, data collected through our software as well as data from other online sources.
We’ll start by analyzing CPM:
Grey dots are actual data points and the red line is the 14 days moving average.
If it’s not clear from the data, this is comparison of the first 7 months in 2019 and 2020:
For advertisers, this sounds like great news - due to higher impression rates and lower competition, CPM dropped down by 40%.
Now let’s check CTR behavior:
Graphically, we see a similar trend as for CPM – decline in late Q1 of 2020., and a trend not going upwards compared to 2019. Now let’s check the year-on-year data:
There is a 28% decline in CTR YoY for the first 7 months of the year. This can be explained by either one of the following:
- People are working from home, they are online more often and checking social networks – Facebook places more impressions, and since the denominator in the formula CTR = Clicks/Impressions is higher, CTR is lower.
- People are less likely to click on general content that is not related to 2020 specific events
Similarly to CPM analysis, let’s check how CTR is behaving month-over-month:
The CTR and CPM data are clear look-alikes.
How does this impact your business and revenue? To understand that, let’s check the CPC graph:
These lines follow what we’ve seen so far – due to a decrease in CPM and CTR, the total CPC looks the same YoY:
In 2020 CPC is actually cheaper, with 14% decline compared to 2019.
In a vacuum, this would mean that on average CAC might be 14% lower, if we assume that conversion rate remains the same. This is why it is important to analyze the conversion rate whenever you analyze advertising results – if all of your ads are landing on a page where users cannot find a purchase button, you’ll still make $0 no matter how good the creative is.
As a final step, let’s check the conversion rate analysis.
We’ll follow the same procedure – plotting the graphs and showing the data in a table format.
The graph shows a slight conversion rate decline in 2020. However, it’s important to realize that data is much more stable in 2020, compared to 2019: variance is lower and results are more predictable. This could mean that users are not making that many impulsive purchases, and are more cautious / think twice before they make a purchase. What we’ve also seen is that they tend to purchase more from brands they trust, but don’t try new products as much.
Now let’s check month-over-month data:
In spite of the above, you should keep one thing in mind – there are still many other reasons why conversion rate might change:
- There is a bug on the website that stops users from purchasing
- Bad UX that increases the friction between landing pages and checkout
- Wrong advertising strategy and advertising setup
- Irrelevant advertising content
- Facebook’s machine learning algorithm and auction system
- External behavior changes impacting users decisions (such as the one impacted by COVID-19)
As a growth marketer, you’re supposed to eliminate unknown variables where you can control what is going on – UX, advertising strategy, website development, content. Once you know you’re doing the best possible work on these ends, you can start tackling more abstract problems like algorithm or behavior changes.
To conclude, let’s sum up key information. For 2020:
- CPM decreased by 30%
- CTR decreased by 28%
- CR dropped by 14%
In conclusion, this resulted in a 15% jump in CAC according to our analysis.
To address these issues and get back on the right growth track – lower the CAC and raise volume – businesses should use the opportunity to lower advertising costs, target users with relevant content focused on the current events and improve website conversion rate by increasing customers trust in the brand.