User acquisition costs definition
User acquisition is the act of getting new users to discover and choose your app in a world overflowing with them. But in 2024, just winning new users is not enough and app developers are focusing more and more on acquiring high-quality users through cost-effective user acquisition campaigns.
The goal is obtaining satisfactory results without wasting any resources in terms of time and money. That is where the determination of user acquisition costs comes in, with it being the foundation for a positive ROI.
User acquisition costs can be calculated by dividing the amount of resources invested in user acquisition by the number of new users acquired. The result is the total expense brought out to win over a new user.
Keeping user acquisition costs at bay is therefore crucial to getting a high return on investment and the first step to do so is choosing the appropriate pricing model amongst many. In doing so, one must realize that there are pros and cons to each and every one of them.
In this article we’ll review the most commonly used ones, for you to choose from based on your strategy, goals, and preference in user acquisition channels to implement. They are:
- CPM
- CPC
- CPI
- CPA
CPM is the acronym for Cost per Mille, also referred to as Cost Per One Thousand Impressions. CPM is the standard pricing model in the ad exchange world, since it has a fairly simple mechanism and advertisers are used to it. They pay a fixed rate for every 1,000 times their ad pops up on an app, regardless of whether or not an interaction takes place.
If your goal is maximizing exposure, CPM is the media buying model for you. Mostly used in brand awareness campaigns, it allows marketers to estimate the cost of reaching a set amount of possible new users and brings awareness to your user acquisition campaign. CPM is then used by apps like Spotify, while also being one of the indicators adopted in television advertising.
CPM is not exempt from risk on the advertiser part, given that the price to be paid is set whether or not the user actually interacts with the ad or even sees it. This may lead to your ROI dropping drastically.
CPC is Cost per Click advertising. It charges the advertiser according to each click that is made on the ad. User engagement is higher and that’s why some advertisers choose it over CPM in their user acquisition process. A more interested user is more likely to bring revenue to your app. A possible drawback of CPC is that to augment volumes in a significant way, costs may be excessive.
CPC is the model used by platforms like Google and Meta such as Facebook or Instagram, because it is extremely effective in driving mobile traffic and cutting user acquisition costs.
CPI refers to Cost per Install, a pricing model where the advertiser pays for every app only once it is downloaded. Along with CPA, it is the main payout model used in user acquisition campaigns, allowing you to grow your app’s user base and increase its popularity. With every install your app will rise through the ranks in the app store, acquiring visibility and driving organic user acquisition as well.
By tracking post-install events, CPI is an effective indicator of the success of your app and its rapidity in getting users to click on the download button is why lots of app marketing is purchased through CPI. Since your app being installed is the main goal, it is largely faster to optimize your user acquisition campaign by switching from CPC to CPI.
While CPI focuses on expanding an app's user base, Cost per Action (CPA) is to be preferred when the goal of your user acquisition campaign is acquiring high-quality users to increase your ROAS.
In this media buying model, the advertiser pays every time a user takes a specific action on the app, like subscribing, making in-app purchases or performing other kinds of post-install events. The action that has to be made is determined by analyzing each app and its user base, while considering the app KPIs, and by aligning to the set purpose of the user acquisition action.
CPA also has the lowest level of risk, sitting on the opposite spectrum of CPM. With all the risk being borne by the UA partner, it affirms itself as a very popular model amongst ad experts.
Now that you have a clearer understanding of this set of user acquisition cost models, you can better determine which one is the best fit for your app. No one model is the best option, therefore your pick has to take into account what are the goals and objectives of your user acquisition campaign.
So keep this article in mind and feel free to come back to it when you want to make an informed choice!
