Are You Taking Advantage of Today’s Record-Low CPMs?
Right now, brands and agencies alike are seeing CPMs as low as they’ve been in years. While this might be bad news for YouTube and other big digital platforms, it could be the opportunity many brands and agencies need right now.
So, let’s dive into what this might mean for you:
If you’re ready to find out what you should do next to increase your digital ad returns and create a lasting strategy for your business, keep reading.
First, What is CPM?
For those who aren’t familiar with the ad jargon we throw around over here, CPM refers to the cost per thousand impressions on an ad that has been purchased based on the number of impressions or views.
So, if you buy an ad based on impressions, you expect a particular number of eyeballs to see the ad. In contrast, you might buy an ad based on clicks, leads, or sales.
So, for example, if you purchase a digital ad at a rate of $4 CPM and the ad gets 1 million impressions, the cost is $4,000.
Cost = 1,000 (CPM ÷ impressions)
Ultimately, you need to know the cost of your ad campaigns to determine if your return is sufficient. And, CPM is a key determinant.
So, What Does “Low CPM” Mean?
A low CPM means that the cost per thousand impressions on your ad is low. And, the return on ad spend (ROAS) for a low-CPM digital ad campaign is typically higher. In a nutshell, a low CMP means that you’re efficient with your ad spend (so long as the campaign helps you reach your goals).
As far as costs are concerned, an ideal CPM varies from industry to industry, platform to platform, and depends on your tactics and goals. Right now, in most industries and on most platforms, CPM is dramatically different than what we’re used to seeing. And, this brings us to the next point.
So, What’s Happening With CPMs Right Now?
As with all marketing and advertising trends, average CPMs fluctuate based on the market. Right now, digital advertisers are seeing extremely low CPMs — lower than we’ve seen in up to three years. We’ve pulled together some data to show what’s happening with our campaigns.
The first thing we noticed is that search traffic declined across the board and as much as 90% for some industries. One industry that seems to be immune (surprise, surprise) is survival. Other than that, search traffic seemed to plummet in Q1 2020.
Website traffic is relevant to trends in average ad spend because platforms charge more for high-interest search terms. So, the amount of web traffic in a certain niche, to a specific audience, and based on target search phrases can lead to fluctuations in pricing.
Another factor in these low numbers is competition. Companies realized that we were likely to see another recession like in 2008 and scrambled for areas to save money. Naturally, ad spend is often cut from the budget in times of economic crisis. During the 2008 recession, for example, ad spend dropped 13% in the US. And, when advertising competition is low, so are costs.
Exactly How Low Are Today’s CPMs?
In a nutshell, CPMs are down on digital platforms. Our top clients have seen an average 57% decrease in CPM from the same period last year.
And, comparing these periods again, we’re seeing the trend across both display and video advertising channels.
So, what about social media?
Facebook CPMs Across Multiple Industries
According to Statista, the average Facebook CPM dropped in March, 2020 to $0.81 from November 2019 when average CPM was $1.88. These numbers suggest that advertising on Facebook has become less expensive.
While social media CPMs seem to be on the decline because of the current economic climate, this isn’t the case for all industries. Here’s what we’ve seen change over the past months.
Luxury shopping targets are a small, elite group of individuals whose shopping habits aren’t typically affected by a recession. So, High-ticket items haven’t seen much of a change in reduced costs compared to previous months. In fact, Facebook CPMs are up in the luxury shopping department from a few months ago, but down a couple of dollars from the same time last year.
Toys and entertainment trends are affected by several factors. With so many children at home with stay at home orders in place, spending in this sector is up. And, so is the competition. This year in March, Facebook CPMs were nearly 300% higher than they were at the same time last year.
Consumers and companies are expecting rent and housing once quarantine and shelter in place orders are lifted. And, Facebook CPMs in the real estate industry are way down. In March of 2019, ad costs were more than double what we saw in 2020.
Online retail sales are up in some niches, yet down in others. And, from February to March, we saw Facebook CPMs nearly slashed in half in the retail sector.
If you’ve ever managed an ad campaign, you know that it’s an excellent idea to advertise when your competitors stop. Still, for some reason, the FIRST thing companies seem to do in an economic recession is cut their marketing budget. But, the fact is that advertising during a recession is not the risk you may think it is.
Then, Should You Advertise During a Crisis?
As you can see from the data above, not all digital ad spend is necessarily a bargain right now. But, COVID-19 has caused some major transformation in advertising. And, these changes aren’t all that different from past recessions.
For example, we have research dating back as far as 100 years ago that shows advantages to maintaining and increasing ad spend during economic hardship (as long as you market intelligently). And, during an economic downturn, brands have a tremendous opportunity to increase sales and grow their market share.
More recently, a 2002 report from the Journal of Brand Management stated that multiple studies show that increasing or maintaining advertising expenditures have a positive impact on future sales growth.
I watched an interview with Kevin Harrington recently where he shared that when the Gulf War hit, they went from generating $50M per year with “As Seen on TV” infomercials and people just completely stopped buying. But, he said after 6-8 weeks things returned to normal.
Brands that continue to advertise see as high as 20% sales growth on average. And, those that reduce ad spend tend to see a 7% decline in sales. So, investing in promotions should be a no-brainer.
Clever and successful brands tend to spend more on their marketing and advertising during recessions for the simple fact that advertising increases sales. And, Even when not generating your highest revenue, economic hardship provides the perfect environment for you to become the hero — focus on providing solutions to their problems.
Advertising done right will help people remember you, like you, trust you, and buy from you during a recession and into the future. So, learn how successful brands have advertised in past recessions and how you might mimic their success in today’s market.
Historical Advertising Trends From Past Periods of Hardship
McGraw-Hill Research conducted a study of U.S. recessions from 1980-1985. Out of the 600 business-to-business companies analyzed, the ones who continued to advertise during the 1981-1982 recession hit a 256-percent growth by 1985 over their competitors that eliminated or decreased spending.
In the United States, there have been as many as 47 economic recessions. And, through each of them, while some businesses fail, many others thrive. So, what do the companies that maintain success during a downturn do differently?
The Great Depression of the 1920s
One of the most talked-about economic downturns was the “Great Depression,” which started in 1929, just one year and nine months after the previous recession, lasted three years and seven months. During this time, employment, industrial production, and stock prices plummeted.
In the 20s, Post had maintained its spot at the top of the ready-to-eat, dry cereal market. And, when the depression hit, the brand made a decision to cut back on their advertising budget. They made it through the recession but at a cost.
While Post reigned in their budget, Kellogg’s decision-makers decided to double their ad spend. Kellogg’s invested heavily in radio and introduced a new product, Rice Krispies.
“Snap,” “Crackle,” and “Pop” were a hit. And, by the end of the depression in 1933, Kellogg’s profits had grown by 30%. The company became the industry leader where they have maintained their top position for decades.
The Oil Crisis of 1973
Following the crisis in 1973 when oil prices nearly doubled, the United States experienced a 17-month economic recession. American Business Press analyzed 143 companies during the economic downturn back in 1974 and 1975. Companies that advertised in those years saw the highest growth in sales and net income during the recession and the two years that followed.
And, toward the end of the first year, when the government issued their first miles-per-gallon report, the Toyota Corolla nearly tied the Honda Civic, which maintained the number one spot in fuel economy.
As a result, Corolla sales spiked. Toyota’s leaders were tempted to drop their ad budget. In the end, they decided to stick with their long-term strategy and continue to advertise.
And, as it turns out, this was the best decision they could have made. Not only did they maintain their success, but by 1976, Toyota surpassed Volkswagen as the top imported carmaker in the United States.
The Inflation and Oil Recession of the Early 1990s
During the late ’80s, the Federal Reserve raised its interest rates. And, while this weakened but didn’t halt economic growth, it was met with an oil price shock in 1990. As a result, there was an eight-month recession in the United States.
During this time, an interesting occurrence took place in the fast-food industry. McDonald’s dropped it’s advertising and promotion budget. And, Pizza Hut and Taco Bell took advantage of the market opening and maintained ad spend.
As a result, McDonald’s saw a 28% decline in sales. The decision to not advertise took a major toll on the company’s revenue. At the same time, Pizza Hut’s sales increased by 61% and Taco Bell’s by 40% respectively.
The Great Recession of 2008
Chances are that you were around to experience the “Great Recession” of 2008, which officially lasted from December 2007 through June 2009. If so, you remember the stock market crash, housing bubble, and unprecedented bank bailouts that took place. And, you remember that individuals and businesses struggled to make ends meet.
But, if you weren’t watching closely, you may not have noticed Amazon slide into the technology market with their “low-cost” alternative to hard copy books with the Kindle. In 2009, Amazon’s customers bought more eBooks than print and the company’s sales grew by 28% that year.
Why Do Ads Have Such a Powerful Impact During a Crisis?
Advertising has always been key to big business success. But, what is it about advertising during an economic downturn that leads to such notable results as those above?
First, if you advertise now, you’re more likely to be remembered when your competitors finally do start promoting again. Brands who don’t advertise or cut back on spending lose the opportunity to own the hearts and minds of the market. In return, they risk losing sales now and in the future. An increase in market share will result in an increase in long-term profits.
On that note, because there are fewer ads in the marketplace, your advertising message is more likely to be noticed. The noise-level of competitors tends to decrease when they cut back on ad spend, which presents an opportunity for you to reposition or introduce a new product. When your niche is quieter, it is easier to be heard than in a typical economic market.
Next, a crisis is a perfect time for companies to project “corporate stability” in their message. How you handle crises speaks volumes to consumers. And, if you take the time to engage with customers, they will remember, which will help you preserve your trustworthy brand image.
Finally, when your competitors don’t advertise, ad costs are lower. And lower CPMs lead to higher campaign efficiency/success. Frankly, you get better returns on lower ad spend. All-sized companies have a tremendous opportunity during a slump to launch disruptive advertising campaigns. Today’s CPMs speak to this.
So, larger brands can launch growth campaigns based-on new consumer needs. For example, remote work, edTech, or wellness-centered campaigns could help companies scale. At the same time, smaller brands with tighter budgets might take advantage of increased ROAS (which equals lower customer acquisition costs) and experiment with creative ideas that have been on the backburner.
7 Advertising Tips for Today’s Economic Downturn
The current and historical trends above speak for themselves: It is crucial to advertise during a crisis. But, there are some caveats that the above data doesn’t spell-out on its own. So, you know you need to advertise, but how?
Based on what we know about what’s happening in today’s economy, here’s what you need to do.
1. Focus on Digital
In the areas that were first hit by the pandemic, we’ve seen various early estimates that show Facebook and Instagram use up by as much as 70%. Facebook themselves have reported that there has been a tremendous uptick in platform use and messaging in the areas hit hardest by the virus. Furthermore, they launched a new group video chat feature in April to accommodate users. And, people are spending more time on their phones and other devices across the board. So, if you can get in front of them where they are, you’ll have a higher chance of success.
People are online now more than usual. In practical terms, Facebook and Instagram are likely to be excellent advertising platforms. However, other factors like industry and customer demographics will help you make the ultimate decision about which digital platforms to advertise on.
2. Start Advertising Now
The reason we think you should jump on the wagon right away is that we believe the low CPMs are likely to be a rare sight. And, the brands we work with that are on the up. So, we are doubling-down on converting ads and taking advantage of the low costs while we can (especially in eCommerce and online education niches).
Google recommends that you keep your customers informed, adjust your advertising, continue to adapt to new customer behavior, and run business remotely in light of the impact of Coronavirus. And, they’re advertising free digital skills training to help brands through this time. Nowhere are you seeing signs of a long-term slow period from the world’s largest leading search engine.
Furthermore, from all of the research we’ve read, it seems like the brands that stopped or minimized advertising during times of crisis took long-term hits. It’s safe to say that if your competitors surpass you right now, based on historical data, it could take you years to catch up.
3. Lean With the Market
Speaking of eCommerce and education, are you leaning with the market? There are some obvious trends at center-stage right now:
- Survival and essential goods
- Online shopping
- EdTech and online education
- Remote work
For example, a furniture manufacturer or retailer might market their desks to hospitals or home offices where before they targeted corporate buildings. If you’re brick and mortar, you might add online shopping/ordering if you haven’t already. If you lean with the market you can reposition yourself as a leader.
4. Tailor Your Message for Long-Term Wins
You need to be relevant. Right now, this means you need to focus on long-term solutions to the short term problems. You’ll be tempted to take the short-term gains, but keep your patience. You want a “share of voice” or “share of the market.” In some cases, you may have to choose between investing in immediate sales or long-term dividends — always choose long-term dividends.
You need to refocus on brand trust and create advertising campaigns that focus on community, awareness, and giving. A content advertising campaign with helpful educational resources is likely to go a lot further right now than an ad campaign that points to your product pages.
And, while it’s important for your message to be timely, most of the content you post should be evergreen in the way that what you say now will have a lasting impact in consumers’ minds. You will be remembered.
5. Keep the Creative Juices Flowing
For a second, let’s circle back to Kellogg’s Snap, Crackle, and Pop campaign from the 20s. This advertising was revolutionary for its time. Now, it is timeless. Creativity is key when it comes to advertising.
In fact, creative advertising campaigns deliver at least 10X more profits. So, while search phrases and metrics are pretty important, don’t neglect your imagination. Originality is still what’s going to set you apart.
When Obama ran for President in 2008, in the middle of the great recession, his campaign won the AdAge Marketer of the Year award. And, we’re not going to forget his unique campaign posters.
6. DO. NOT. PANIC.
It’s easy to overreact to a downturn. So, if you have started to panic, stop right now. Take a deep breath. Stand up. And, get back on the horse. The worst thing you can do right now is go dark. Your clients and customers need to hear from you.
And, if you must cut ad spend, be strategic, scrappy, and inventive. Work within whatever budget you have to let your audience know we’re all in this together. Even, if you have to shoot out emails or Facebook posts yourself, take the time to do it.
Delta Airlines has every reason to freak out. Instead, they’re keeping their message positive. Check out this message from March 29, 2020:
The brand is reaching out, keeping communication open, and letting consumers know everything they are doing to get through this crisis. Take their lead on this one.
7. Work With People Who Understand the Market
Whether you’re an agency yourself or a brand, make sure that at least one person on your advertising team understands crisis marketing. You need to be tasteful right now, more than ever. You need to lay a foundation for a lasting community within your company.
AdAge recommends the following steps for hiring an ad agency:
- Hire a culture, not an agency.
- Get a measure of agency talent.
- Set realistic and attainable expectations.
- Know who will make campaign decisions.
- Create a shortlist to interview. Short.
- Use your request for a proposal (RFP) to ask why the agency wants the job.
- Don’t limit your search to one location.
- Choose by more than brand names and prices.
- Get a grasp on the agency’s future vision.
So, don’t hire the guy who had the bright idea to try to horde toilet paper at the beginning of all this so that he could sell it for a fortune on Craigslist. Instead, hire the guy who isn’t panicked, wants to help you build a community, and thinks more outside-the-box.
Ultimately, what you need to do right now is be smart. When it comes to advertising, if you don’t take this opportunity to establish yourself in the market, you may have to work harder to make up for it over the next five years. If you already panicked and cut your ad spend, don’t fret — you still have time to jump back in and let your customers know you’re here. But, don’t wait too much longer because we don’t think the low CPM trend will last forever.