Most people in advertising imagine the mythical purchase funnel as a framework to show the different stages of buying consideration. At the top of the funnel, consumers don’t know what they want, but are open to gaining awareness and familiarity with businesses. In the middle, they plan to make a purchase and are looking for someone to fulfill their need. And, at the bottom, they are in-market whether they are at a store or at home online, planning to transact immediately or in the very near future. The intent to transact clearly gets more and more qualified as the consumer descends down the funnel.
While many advertising people are familiar with this concept, no one ever has quantified the stages in terms of cost of reaching the consumer. PaperG embarked on a study, using data from its 20,000+ advertisers and from third-party sources, to empirically show the cost of acquiring a click from a consumer at the different stages of purchase consideration. A click doesn’t reflect the total value that advertising delivers since ads influence plenty of people who may convert later; however, it does provide a common denominator to compare across digital formats.
By understanding the cost-per-click (CPC) on average in these stages, marketers can better allocate spend and understand the value they are getting. Different industries and sizes of advertisers may see different absolute values but we wanted to get some numbers out there to start the discussion.
Businesses need to spread a wide net to maximize how many actual customers they will get. As a result, they need to optimize for reach while balancing against quality of potential customers, which targeted display advertising can accomplish. We’ve found the cost of getting a click from local customers online to be roughly $1.91 CPC. For many businesses where a lead could result in a $5 purchase or even $1,000 purchase, getting a quality click for $1.91 is ROI positive as shown by our case study on display. Of course, not all the clicks at this stage are ready to convert immediately into a transaction. You can easily calculate what % would need to be quality leads, intent on converting soon, to make display ROI positive on purely an immediate performance basis and not factoring its ability to influence future purchase decisions.
From our data, businesses are typically spending about $4.98 CPC to acquire customers who are searching on Google or other search engines. That is more than twice the cost of the first stage, reflecting the increased value of the click, which has more intent behind it. At this point, businesses are more or less bidding to fulfill existing demand so they have greater certainty a customer is going to spend money if they get that click, so it shouldn’t be surprising that they pay more.
That said, we’ve found from our data that 35% of people who see a display ad will later search for that business and many more will search for a category related to the business. The CPC for people searching for a specific business are $0 often times or drastically lower so people should be investing in display to help their search campaign. In addition, they can get more volume from the category-level keyword searches by buying display ads.
Once the consumers have landed on a business website, they are clearly in market to make a purchase. Businesses could do nothing after that but hope the consumer converts to a paying customer. However, more and more customers are now buying “re-targeted display advertising” which shows ads to consumers who have visited their website or who have searched a specific keyword online. These customers have incredibly high intent to convert soon so they are worth much more — in fact; clicks at this stage have been shown to be worth $5.60 CPC. That is nearly 3X the price of a regular display ad click.
Advertisers can acquire twice as many clicks from the same budget using display instead of search. This makes a lot of sense if a business is invested in building strong awareness among its potential customer base. More risk averse advertisers who only want to reach people clearly in-market could invest much more into re-targeted display ads for not much money than it would cost to buy search ads.
Consumers are worth different amounts depending on the stage of purchase they are at. Advertisers need to learn how to value them differently and advertise accordingly.