Advertising Rebound: CPMs Tell Us Now is the Time to Take the Ball and Run
It’s a logical human reaction. When times of uncertainty or economic difficulty arise, the logical reaction for business leaders is to control business costs by pulling back on spending. In many cases, advertising spend is one of the first to go, as it causes the least immediate pain compared to employee benefits reductions, office closures, salary cuts, or employee layoffs.
The Covid-19 global pandemic is certainly an example of this paradigm — only on an unprecedented and monumental scale. Unlike more familiar past economic challenges that may be driven by politics, market or sector performance, and inflation, this situation is instead triggered by a deadly virus that spreads like wildfire. It has caused most global governments to issue ‘stay-at-home’ mandates, which, while critical to control the virus transmission, have also resulted in the cratering of most economies.
While some countries are slowly easing their lockdown mandates, for many, uncertainty still remains for when business will return to “normal.” And a big question hovers: “When is the right time to take our foot off the break and apply the gas?” When you look at advertising costs as an indicator of economic recovery, it’s clear that now is the time, and social advertising is the vehicle.
According to data compiled by the Blavatnik School of Government at Oxford University, mandatory lockdowns were implemented for 3.9 billion people in 92 countries as of April 8. As these stay-at-home mandates were rolled out, consumers’ time online has grown exponentially. According to a March blog post by Facebook, “In many of the countries hit hardest by the virus, total messaging has increased more than 50% over the last month.” Italy, as an example, has seen a 70% increase in the time users spend on social media since the crisis arrived. In fact, during a call with analysts on April 29, Facebook CEO Mark Zuckerberg said, “For the first time ever, there are now more than 3 billion people actively using Facebook, Instagram, WhatsApp, or Messenger each month.” To advertisers, this means a much larger addressable audience is online and available to those who want to reach them.
For those with the financial means, this is a tremendous opportunity to restart advertising. Most advertising, at least digital advertising, is based on a competitive bidding model. In other words, when there are fewer competing advertisers, the price for impressions goes down. The Cost Per Mille (CPM), the amount an advertiser pays a website per one thousand visitors who see its advertisements, has plummeted as a result of Covid-19. In a recent analysis I completed, there is an undeniable relationship between the growth of active Covid-19 cases and the decreasing cost of Facebook CPMs.
For the analysis, I plotted the weekly growth of active Covid-19 cases in eight countries (Spain, Italy, U.S., U.K., Germany, Australia, Brazil, and Canada), along with the average Facebook and Instagram CPMs during the same time. As the number of active cases grew exponentially, the CPMs tumbled, averaging a peak decrease of ~50% across the eight countries. Therefore, social advertising is an absolute bargain compared to pre-COVID-19 rates.
However, time is of the essence. Just as there is a direct correlation between the growth of active cases and CPM decreases, there is also a clear correlation tied to the slowing of active cases and the recovery of CPMs. As the data from my analysis indicates, within 14 days of active cases in a country dropping below 50% week-over-week growth, Facebook CPMs rebound by double digits over the prior week. In most countries, the CPM rebound has been greater than 50%. In other words, slowed case growth is the triggering event for the rapid return of advertisers.
As identified by The Economist in an April 17 article, 60%+ of the “rich countries” in the world are experiencing decreasing rates of new infections following their clear peak. As a result, mandatory lockdowns are being eased, and businesses are slowly reopening. While global economic recovery will be a slow and iterative process, there is a genuine need to reignite the global economy, and many countries (and advertisers) appear to be ready. Advertisers with any budget to spend should be ready, too.
Paul Elliott is the CEO of social advertising firm TigerPistol.