What are cost models?

A cost model is a framework in mobile advertising that determines how advertisers pay for campaign inventory. Each model works on a “cost per” basis, meaning advertisers pay publishers based on specific user interactions or metrics, such as impressions, clicks, installs, or completed actions. When a user completes a particular pre-agreed action (and when it can be proved complete), the advertiser pays the publisher.

The total cost of a campaign is calculated by determining how many different users from that particular channel completed the action during the length of the campaign. By choosing the right cost model, advertisers can align their strategy with their budget and optimize for specific campaign goals, whether it's driving app installs, building brand awareness, or increasing revenue. Understanding cost models is essential for minimizing risks and maximizing return on ad spend (ROAS).

There are many different payment mechanics, but these are the most widely used approaches in the mobile advertising space:

• Cost per mille (CPM): The advertiser pays the publisher every time a thousand impressions are recorded on a single advert. This model, also known as "cost per thousand impressions," is ideal for brand awareness and large-scale visibility. For example, a $500 campaign with 100,000 impressions results in a CPM of $5. It’s commonly used in the early stages of campaigns to establish a strong presence.
•  Cost per click (CPC): The advertiser pays the publisher every time a user clicks on an advert. This model is performance-focused, ideal for driving traffic to websites or app stores. For instance, a $200 campaign generating 500 clicks would have a CPC of $0.40. CPC offers transparency in return on investment (ROI) measurement but requires vigilance to prevent issues like click fraud.
• Cost per install (CPI): The advertiser pays the publisher every time a user clicks an advert and then goes on to install the app featured within that campaign. For example, a $1,000 campaign resulting in 250 installs translates to a CPI of $4. This model works best for app launches, ensuring budgets are directly tied to user acquisition.
• Cost per action (CPA): The advertiser pays the publisher every time a user interacts with an advert, opens or installs an app and then completes an action (e.g. a newsletter sign up). For instance, a $500 campaign yielding 50 purchases would have a CPA of $10. This model minimizes financial risk and ensures spending aligns with measurable outcomes, making it ideal for performance-driven campaigns targeting high-value users.

Other purchasing mechanics exist – such as cost per engagement – but in the mobile advertising space, these four approaches are the most favored among advertisers.

Understanding cost models is critical because each serves distinct advertising needs, allowing advertisers to align their strategies with campaign goals, budgets, and business objectives.

1. Aligning cost models with campaign goals

Different cost models suit different purposes. For example, a gaming app launching globally may prioritize CPI to drive installs, ensuring advertisers only pay for new users. This model provides predictable costs and straightforward ROI measurement.

In contrast, a subscription-based app might benefit more from CPA, which charges advertisers only when users complete high-value actions like subscriptions or purchases. This approach helps focus budgets on acquiring engaged users who drive long-term revenue.

2. Balancing risk and cost

Cost models vary in risk and cost structure. CPM, for instance, offers broad reach at lower costs but doesn’t guarantee user engagement, making it riskier for performance-focused campaigns. On the other hand, CPI and CPA minimize risks by linking costs to user actions, though they come at higher price points.

For instance, a fitness app might use CPM during its pre-launch phase to build awareness cost-effectively and then shift to CPA to optimize spending on acquiring premium subscribers.

3. Tailoring strategies to app lifecycle and goals

Knowing the range of payment options allows advertisers to adapt their approach based on an app's lifecycle and target audience. E-commerce apps running seasonal promotions, for example, may combine CPC to drive traffic with CPA to focus spending on high-value purchases.

By selecting cost models aligned with business goals, advertisers can reduce waste, improve ROI, and achieve scalable growth.

One of the primary challenges for advertisers is verifying with publishers when a payment should occur. Without proper attribution tools and tracking links, advertisers risk being overcharged or paying for traffic they shouldn’t, such as organic installs. In mobile advertising, accurate attribution is crucial to ensure advertisers are billed correctly and to prevent overpayment.

Adjust addresses this challenge through its comprehensive attribution and fraud prevention solutions. By providing unique tracker URLs for every campaign and offering an intuitive dashboard, Adjust allows advertisers to accurately measure installs, impressions, and in-app events. This ensures that advertisers pay the correct amount to networks based on genuine user engagements.

To further safeguard advertising budgets, Adjust’s Fraud Prevention Suite detects and filters out fraudulent activities in real-time, such as SDK spoofing, click injection, and click spamming. This proactive approach ensures advertisers only pay for valid interactions, maintaining the integrity of their campaign data.

Schedule a demo with Adjust today and discover how to optimize your cost models for smarter spending and maximum ROI.