November 28, 2022
min read
App Monetization

Why Sorting by Earnings Per Click Depletes Revenue

Is Earnings Per Click (EPC) a Good Revenue Indicator or Facade?

Over the past decade, the digital advertising market has grown and matured rapidly. Today, digital ad spending represents a significant portion of global ad spending. The rise of digital advertising has led to the development of new ad formats, measurement tools, and pricing models.

One of the most critical developments in digital advertising is the growth of programmatic advertising. Programmatic advertising refers to the use of technology to automate online ads' buying and selling, enabling real-time bidding on ad inventory and increasing the efficiency of ad buying and selling.

However, a lot can happen in a few years, and the industry is due for a big shakeout as consumers become more aware of the manipulative tactics of many digital ad servers and develop a sense of distrust regarding the industry as a whole. An essential question that will need to be answered in the next few years is whether or not earnings per click (EPC) is a good revenue indicator or facade.

EPC is often used as a key performance indicator (KPI) by publishers and advertisers alike. Sorting by earnings per click (CPC) is one way of measuring the effectiveness of an online advertising campaign, as it gives you an idea of how much revenue a particular campaign has generated. 

On its face, EPC seems like a great metric to use. After all, if you're spending money on ads, you want to know how much revenue they're generating, right?

The problem is that when you sort by CPC, you'll quickly see that the top performers are not necessarily the best quality ads and vice versa.

In other words, if you compare apples and oranges, you might come up with the wrong conclusion - potentially waste your time and money. And when you are operating in a highly competitive market, like online advertising, every second and every dollar counts.

This is not to say that EPC is completely useless - far from it. As with any metric, it has to be put into context and used in conjunction with other metrics to get a clear picture of what's happening. For example, if you're looking at a campaign with a high EPC but a low click-through rate (CTR), that could indicate that the ads are being clicked on by people who are not interested in the product or service being advertised.

It's all about quality control and the relevance of the ads you're running, which is why there is another measurement more representative of an ad's quality, and potentially its revenue-generating ability – view-based quality measurement (VBQM).

By taking into account both EPC and VBQM, you can get a more accurate picture of an ad's quality and how much revenue it is actually generating. And that's important because at the end of the day, what really matters is not how much money you're making per click but how much money you're making overall.

Let's take a look at what these terms mean and why view-based quality measurement should be your preferred choice when assessing an ad's effectiveness.

What is EPC?

EPC stands for "earnings per click." It's a metric that is used to track the revenue generated from clicks on an ad. The higher the EPC, the more money the advertiser is making from each click.

To calculate EPC, you simply divide the amount of money earned from an ad campaign by the number of clicks. So, if you ran a campaign that generated $100 in revenue and received ten clicks, your EPC would be $10.

EPC offers a way to compare the revenue generated from different ad campaigns, and it can be a helpful metric when trying to determine which campaigns are performing well and which are not.

However, EPC should not be used as the sole metric for assessing an ad campaign's effectiveness. There are a number of factors that can affect EPC, and not all of them are under the advertiser's control.

For example, the price of the advertised product or service can have a significant impact on EPC. If you're selling a high-priced item, you're likely to make more money per click than if you're selling a low-priced item. This means that a campaign with a low EPC might actually be performing better than a campaign with a high EPC if the product being advertised is less expensive.

In addition, the type of product or service being advertised can affect EPC. Some products and services are simply more expensive than others, so it stands to reason that they would generate more revenue per click.

Finally, the context in which an ad is being shown can also affect EPC. For example, if an ad is being shown on a website with a lot of traffic, it's likely to generate more clicks (and more revenue) than if it's being shown on a less popular website.

This means that two ads with the same EPC can actually perform differently depending on where they are being shown. And that's why EPC should not be used as the sole metric for assessing an ad campaign's effectiveness.

What is VBQM?

View-based quality measurement (VBQM) is a metric that assesses the quality of an ad based on how long it is viewed. The assumption is that the longer an ad is viewed, the more likely it is to generate revenue.

Within VBQM, there are several different metrics that can be used to assess an ad's quality:

  • Relevance of the Ad
  • Ad Quality Control
  • Revenue Generation
  • User Experience
  • Lifetime Value

Taken together, these metrics provide a more accurate assessment of an ad's quality than EPC. Let's break down each of these metrics in more detail.

Relevance Of The Ad

The first and most crucial element of VBQM is relevance - or how well the ad aligns with the interests of the person who is viewing it.

If an ad is relevant to the viewer, they are more likely to pay attention to it and, as a result, be more likely to take the desired action (such as clicking on it or making a purchase). This then ensures that the advertiser reaches its target audience and that the ad has the desired effect.

For example, if you run a retail site and want to promote a holiday purchase, you might want to consider creating a series of ads focused on one item – a sweater, hat, or even a full-on ski gear set. This way, you can be certain that you're reaching users who are most likely to be interested in your product and, as a result, are more likely to take the desired action.

On the other hand, if your goal is to promote a fashion style, you might want to create an ad that features a model wearing that very style.

For instance, imagine you're trying to promote a unique women's long-sleeve top from your favorite designer. You could create an ad that shows a woman wearing a long-sleeve top from Vuitton, and if the top is relevant to the viewer, they're more likely to take notice.

Relevancy is essential for any ad campaign, but it's especially important for view-based quality measurement. That's because the whole point of VBQM is to assess how long an ad is viewed, and if an ad isn't relevant to the viewer, they're not likely to want to look at it for very long.

Ad Quality Control

If relevancy is key to VBQM, then ad quality control is the second most important element. After all, even if an ad is relevant to the viewer, it won't be effective if it's of poor quality.

If you run the same ads repeatedly, over time, you will see diminishing performance – that's because the engine that delivers the ad will learn from its mistakes and adjust the creative to suit your needs better and better.

Imagine you're running a series of display ads, and you see nearly all of them performing poorly. This likely is because you're running the same, poorly performing ad repeatedly, which is why you should pull the plug on that particular campaign immediately to avoid further losses.

However, if you're constantly testing new ads and maintaining a high level of quality control, you're more likely to see better results.

For example, say you're running a series of video ads. You might want to test different videos with different thumbnails to see which ones perform the best. If you find that a certain video is performing exceptionally well, you can then focus your efforts on running that video more often.

By constantly testing new ads and regularly assessing their performance, you can be sure that you're always running the best possible ads, which will, in turn, help to improve your view-through rate.

Revenue Generation

Of course, the primary goal of any online advertising campaign is to generate revenue. The more you generate, the more you can spend on other campaign elements, like creative or website redesigns.

With VBQM, you can measure the direct revenue that an ad has generated. For example, if you ran a campaign for two weeks and the ad generated $5,000 in revenue, you can attribute that amount to your ad and the creative behind it.

This number will be especially relevant if you're trying to determine how much you'll need to spend on each individual element of the campaign – like the creative or the website.

Now, a lot can happen in two weeks which would make that amount highly unpredictable. For example, maybe the creative did well because it was tied to an affiliate program that paid you on a per-click basis. In this case, you'd want to replicate this success and pay the creative team again in the future for similar work.

Revenue generation is the most critical metric for any online advertising campaign, and VBQM can help you attribute a portion of that revenue to your ad by measuring how long it's viewed. Without this metric, it would be nearly impossible to determine how much revenue your ad has generated.

User Experience

The last, but certainly not least, element of VBQM that you should measure is the user experience. The more you can offer your users, the more you can attract and retain them – which in turn means more opportunities for you to promote relevant ads and earn your keep.

UX encompasses everything from the design of your website to the way your ads are displayed. If you're not offering a good UX, users will leave your site and won't come back.

To that end, you could introduce your users to a guided shopping experience via a personalized landing page or provide useful information that will help them find what they're looking for.

Additionally, you can use the data you collect to improve the user experience on your site – for example, by implementing a loyalty program or rebooking a customer's trip to a luxury destination should they visit your website a second time.

By investing in the user experience, you're not only making your site more attractive to potential customers, but you're also increasing the likelihood that they'll stay on your site – and that they'll come back in the future.

VBQM can help you measure the user experience by tracking how long users stay on your site and what actions they take while they're there. If you see users leaving your site after only a few seconds, you know you need to improve the UX.

On the other hand, if users are spending several minutes on your site and taking action – like clicking on links or filling out forms – then you know you're doing something right.

Lifetime Value

While the above elements are essential for any online advertising campaign, one metric you should be aware of is lifetime value.

Lifetime value (LTV) is the total amount of money that a customer spends with a company throughout their relationship. It's always important to look at the overall picture when analyzing the success of an advertising campaign. How much is this particular campaign worth in the end?

The simple answer is that it's worth whatever you're paying.

If you're paying for it with your own money, it's worth whatever you're paying for. If you're paying for it with ad money, it's worth whatever you're paying for it with – whether it's $5 or $500 per click. You need to look at the big picture to determine the lifetime value of a customer.

Essentially, whatever you're paying for it, you're getting your money's worth. Make sure you're not overpaying, as this will also impact your revenue-generating ability. You don't want to be in the red because of your advertising campaign.

Unlock the Power of VBQM in Your Ad Campaigns

So, is EPC worth it or simply a passing fad? 

The answer is that it depends on how you use it. 

If you're not using VBQM to its full potential, then it's likely that your ad campaigns are falling short - and you're not generating the revenue you could be.

But if you are using VBQM to its full potential, then you can expect to see a significant return on investment from your ad campaigns. It can help you attribute a portion of your revenue to your ad, improve the user experience, and increase the lifetime value of your customers. Use it to your advantage and make sure you're not overpaying for your ad campaign.

When it comes to online advertising, VBQM is the key to success. If you're not using it, you're missing out on a valuable tool that can help you attribute revenue to your ad, improve the user experience, and increase the lifetime value of your customers. Make sure you're taking advantage of VBQM in your ad campaigns!