State of Digital Marketing Report

Advertising Costs Dropped As Conversions Climbed

The tune of post-holiday blues was loud and clear in the beginning of 2023. In January, both the cost of advertising and conversion volume dropped significantly compared to the previous year. Throughout Q1 2023, advertising cost-per-mille (CPM) and visitor numbers stood at levels similar to 2021. On the other hand, conversion volume was much lower in January compared to the last two years, but has been rapidly increasing throughout Q1. This was likely a result of a post-holiday spending “hangover” for consumers, coupled with recession worries that dominated the news cycles at the start of the year.

• Cost of advertising, as measured by CPM, was down 33% on average in the first quarter of 2023 compared to the year before. CPM in January usually declines from December as the holiday season ends. However, the low CPM in Q1 2023 was more a result of the relatively low CPM in Q4 2022 than an unusual drop in the beginning of 2023.

• Website visitors, on the contrary, were up 13% in the first quarter of 2023 compared to the year before. This strong visitor number echoes the improved and stable US Consumer Sentiment Index throughout Q1 2023.

• Website conversions, on the other hand, were down 19% in the first quarter of 2023 compared to the year before. However, the conversion volume trend for Q1 2023 looks very different from the last two years. This rapid increase in conversion volume from January to March indicates a strong momentum of commercial activities. While recession concerns may have been top of mind at the start of 2023, these numbers seem to show these financial worries were somewhat shrugged off as the year progressed.

Cost of advertising, as measured by CPM, was down 17% on average in the fourth quarter of 2022 compared to the year before. Contrary to the upward trend in 2021, the CPM stayed relatively flat throughout 2022. As a result, the cost of advertising was lower during the 2022 holiday shopping season compared to the prior year. This reflects the uncertainty of the economy and the cautious sentiment from advertisers during the last holiday shopping season.

CPM Forecast - Return on Ad Spend Is King

As we approach the summer, we predict CPM will follow a similar seasonality trend, but still remain below the levels of the past two years. As advertisers continue to decrease budgets in the wake of economic uncertainty, we don’t foresee factors that could significantly lift CPM emerging in the next few months.

The main concern advertisers have now is not budget, but how to allocate that budget. Return on Ad Spend (ROAS) is king.

Optimize Retargeting Campaigns Across Media Channels

To improve ROAS, marketers need to prioritize conversion-driven campaigns by focusing on optimizing their retargeting campaigns first.That means finding the most effective channels at the lowest cost to engage with visitors who left your website without taking a desired action, such as making a purchase or signing up for an account.

Not surprisingly, the least expensive channel is the one you own - email. For visitors who opt in to receive emails, email retargeting should be the first channel to leverage. Besides low cost, email gives marketers far more control on messaging and timing than paid channels.

However, paid media does provide much broader reach. With numerous locations to place ads, including websites and social networks, the chances of meeting your target audience where they are is much higher. As a result, you’ll want to try out several different media channels to find the optimal channel mix for your retargeting campaigns. You should also continuously experiment with your ad frequency, creative, messaging, and calls to action to further optimize performance.

More Paid Media Channels, More Opportunities for Marketers

Marketers undoubtedly have a wide range of paid media choices. In a recent survey, we asked AdRoll customers to identify the paid media channels they are currently using from a list of the most popular channels. Unsurprisingly. Google Search Ads, Google Display Ads, Facebook Ads and Instagram Ads floated to the top as the most commonly used platforms.

What did surprise us, however, is that respondents reported using an average of 6.2 different types of paid media. One respondent even reported using 17 media types. Imagine how much work is required to understand the ROI across all those channels, never mind optimizing performance.

According to a 2022 study by Funnel, 41% of marketers state they are not comfortable collecting and analyzing data, and 35% have difficulty reading and understanding it. Understanding and leveraging marketing data is foundational to optimizing ROI across channels.

The proliferation of paid media channels presents both an opportunity and a challenge to marketers. Maximizing ROAS demands an integrated approach to media planning, assisted by marketing technology that enables marketers to scale their campaigns across more channels without multiplying their workloads.

Key Takeaways

• Advertising costs in Q1 were at their lowest in the past 2 years while online conversions trended up. Consumer sentiment improved and is stable.
• CPM is expected to remain below the level of the past 2 years through the summer.
• As advertising budgets continue to shrink and ROAS is prioritized, retargeting will become an important lever.
• To optimize the performance of retargeting campaigns, marketers need to leverage both owned and paid channels to reach and engage with their target audiences.
• The vast amount of media channels available present both a marketing opportunity and a risk. Marketers should rely on tools to help them effectively manage campaigns on multiple channels and optimize channel performance.