Volume and cost efficiency, why you can’t always have both

What happens when you want to chase more traffic?

Even to this day, I’ve never forgotten the conversation I had with a client when I was working on their credit card product. The client in question was passionate about direct mail, and knew that if they needed to generate more applications, they could expand their targeting and buy new data (either at a higher rate for better quality or expect a weaker efficiency from some outlier targeting). However this new data-set performed (and this is the important bit), it didn’t affect the cost or performance of the original batch of data which had been optimised to target. They were mutually exclusive campaigns and thus the performance of one didn’t affect the other.

Unfortunately, in the world of digital, in most cases in order to spend more and drive more volume you have to incur additional costs fairly early on in your quest and it isn’t as easily compartmentalised. Paid search is a classic example:

Let’s say you’re paying on average £1.00 per click for position 3 and getting 50 clicks and your budget isn't capped (so you're spending as much as you can in that position).

If you wanted to increase your click volume you could chase position 2 or 1 in order to get a better CTR and thus win more clicks from the same impressions. However, in order to win position 2+ you will need to bid higher. As soon as that happens, you are not only incurring charges for the additional click volume, but you have also said goodbye to 50 clicks at £1.00. Those same 50 clicks could now cost you £1.25 because you’re now playing at a higher level and all clicks cost £1.25.

So you see, by step changing into a new territory you’re applying the heightened cost to everything, not just the additional volume you want to generate.

What happens when you have bigger budgets to spend?

Another example happened recently, whereby we were planning for a multi-channel approach for a travel client. As we all know, travel journeys are complex, and whilst you chase cost efficient conversions the channels that deliver it (e.g. search) only have a finite amount of search demand and recommended media spend.

The client had approached us with three tiers of budget, quite significant step changes between the proposals and asked us what we could deliver in terms of booking volume and CPA.

As we reviewed the strategy we knew that our lowest CPA channels could only deliver a fraction of the available media spend, and when budgets significantly increased they were unlikely to be able to grow at the same rate. Therefore we needed to look elsewhere to drive additional traffic and bookings.

Unfortunately when you step outside of search you are usually faced with higher acquisition costs because people are less ready to make a decision. As we assigned budgets into these planning and awareness level campaigns the CPAs started to unsurprisingly climb.

Table for illustrative purposes only.

The client questioned why they should spend 4X the amount and get less efficient volume. I explained to them like I have in this thread, but I also challenged them - what was more important, volume or a low CPA?

If there was a strict CPA target then we would have pulled out of channels that couldn’t pull their weight, abandoning the funnel approach to convert awareness into consideration into action, but this would have seriously restricted volume. So they had to make a choice.

In the pursuit of volume when your highly optimised channels have been exhausted you have to sacrifice some efficiency for greater gains.

You also have to make decisions about where to spend your next £ if you have some options. Do you pick just one more complimentary channel and maximise the reach and volume here, or do you diversify into 2/3/4 additional channels to give yourself breadth rather than depth?

Why is multi-channel marketing effective?

It’s risky to rely on just one channel to drive volume, but at the same time it can seem hard to invest in ones which just don’t deliver on your targets. Mark Ritson, supported by research from studies like Analytics Partners, encourages multi-channel marketing for effective marketing campaigns. There are lots of video case studies using this evidence, but here's one to give you a flavour...

When over-optimising stifles volume

Quoting top level figures and averages masks the fact that within high performing channels there are also variances in performance. We typically only look at top level channel performance, and maybe campaigns, but you can drill down to keyword, ad copy, time of day etc to get a super-efficient account. But if you did this, by the time you were done you’d realise you’d probably killed off 80% of the click and conversion volume you used to get when you were ‘quite happy’ with the original overall average.

Is it worth paying more for incremental gains?

The only other analysis you can do is appreciate what it takes to step change the volume - is it worth paying 2X, 4X, 10X for every additional conversion? Tread carefully when you conduct this analysis as it can misguide or alarm you as you’re not paying over the odds for the incremental volume, you are accepting that to get there your blended CPA significantly changes. Depending on what step changes you are making, the pursuit of additional volume could be costly, but if you’re still comfortable with the overall CPA you shouldn’t (or can’t) get too concerned with it (that’s just what it takes).

There's a compromise in there somewhere

So, to cut a long(ish) story short, when you’re weighing up CPA and volume, you can’t always have both unless you’re willing to compromise on a happy medium - you won’t get the best CPA nor will you get the most volume, but you will have a balance that works for your business and in the long run is more effective.