A Look at Rising Customer Acquisition Costs in 2021

The pandemic has been interesting, to say the least, for app publishers. And depending on your vertical, changes have not always been felt equally. While user acquisition (UA) initially became easier — and cheaper — for mobile game developers, other verticals have seen skyrocketing costs. The rise in competition, along with Apple’s deprecation of IDFA has turned the UA landscape on its head and led to increasing CAC.

Liftoff’s 2020 Mobile Gaming Apps Report found the cost to acquire a user averaged $1.47 per user, down 66% from the year before. The initial interest in apps, driven by the global population being confined to their homes during the pandemic, was great for UA and customer acquisition costs (CAC). But since people first turned to their phones by the millions to download games, e-commerce apps, and apps that allowed them to communicate with friends and family, Apple changed the game by deprecating IDFA and introducing App Tracking Transparency (ATT), changing UA as we know it forever — and driving up CAC.

Grappling with these surging costs, mobile app developers and publishers have been forced to get strategic in how they drive business growth and maintain user satisfaction. Let’s dive into what’s behind increasing costs and how businesses are combating high CAC to stay ahead of their competitors.

What’s behind the rising CAC for mobile apps?

With COVID-19 and the subsequent surge in mobile app usage and digital transformation, many companies have been fighting to get a slice of the pie. Global app spending reached almost $65 billion in the first half of 2021 — an increase of 24% compared to the same period in 2020. Accordingly, a 2020 study by Gartner found that marketing technology and digital channels were largely able to steer clear of pandemic-related budget cuts, while increased customer acquisition was the top priority of 65% of marketers in this 2021 Iterable study.

According to App Annie, people were spending an average of 4.2 hours per day on mobile, surpassing time spent watching TV. The resulting emergence of new platforms and expansion of existing ones to cater to new user demands created a competitive landscape for app developers and advertisers alike.

“The impact of COVID-19 was strong — mobile phone usage went up, resulting in more ad opportunities and more users playing games, along with more app developers and game developers entering the scene too. And many of them were investing a lot in marketing,” says Meiry Vaknin, VP of Partnerships at YouAppi.

On top of that, the iOS 14 update, which made IDFA (Identifier for Advertisers) collection opt-in, changed the way that the mobile app industry was able to target and track advertising. Reflecting on the increasing CAC of 2021, Vaknin says, “The main reason is Apple’s privacy changes. Especially since iOS 14.5, some categories saw increases of up to 200% of IDFA users and 100% increase of IDFA-less users.”

The percentage of Apple users who consented to tracking fell from 73% at the beginning of 2021 to 32% by the end of June after ATT was introduced, according to a Moloco study. The fight for those users who have consented to tracking is fierce, and expensive. “Amid that shift, the average cost of conversions for e-commerce marketers surged 200% for tracked users and 155% for non-tracked users during the six-month period,” reports Marketing Drive. This trend has been repeated across the app ecosystem as publishers fight for the users they want to target.

How is the mobile industry combating rising CAC?

Faced with an influx of competition and new privacy controls for iOS, mobile app developers, advertisers, and partners have been deploying new strategies to keep CAC from becoming unsustainable.

In many cases, app developers are unable to track on the individual user level and are now switching to group-level tracking and contextual-based targeting. Many are having luck by targeting users with ads that are relevant to the content or product on the page that the user is visiting at that moment, rather than an ad that’s based on now absent historical data. Alternatively, users are being served ads based on “best guesses” about groups they may belong to or interests they may have. 

Other app marketers are publishers are getting even more creative. “Developers have been investing in Lifetime Value (LTV) measurements without being able to attribute and measure on a user level — they’ve been using and exploring different tools to measure LTV more efficiently so they can keep spending. For example, using UA automation tools with predictive modeling allow developers to predict user-level LTV using algorithms,” explains Vaknin.

App marketers have also been turning to their partners for support and insights on what, for many, is new territory. “Mobile measurement partners have also been working hard to better support their developers. They’ve done this by helping them with visualizations of data and insights and assisting them in maintaining efficient paid marketing strategies,” says Vaknin.

“Collaboration between partner and client is more important than ever before. Developers should make sure to share more insights and detail on their general marketing activities to make that collaboration more fruitful,” he adds. Often, that means focusing your marketing efforts not on user acquisition but on retaining users, measuring incrementality, user journeys, and more. You can also help your users understand why opting in to your ATT prompts is important, which will allow you to gather more information and help improve your probabilistic targeting.

Vaknin notes that apps with a strong brand and IP are the ones driving higher opt-in rates. This is due to increased user trust compared to newer or lesser-known apps.

Looking ahead: Strategies for keeping CAC low

Something resembling pre-pandemic life when it comes to social activities and travel may be upon us, but by no means will mobile app growth lose the gains that it made over the last year to 18 months. In order to thrive in this new landscape, mobile apps should adopt an agile approach that centers new and existing users’ demands and expectations.

App developers shouldn’t lose sight of the importance of creative and unique visual assets, using new technologies to wow their audience. And of course, testing these campaigns is paramount to understanding what’s hitting the mark and what isn’t.

Meeting potential new users and customers where they are and adapting to new formats and platforms is also essential. For example, the rise of TikTok in 2020 has led many mobile advertisers to consider how they might be able to ride the wave of user-centered content and real-life shooting. By keeping their finger on the pulse of upcoming trends and user demands, app developers and marketers will drastically heighten their chances of converting new customers.

It will also pay to take a leaf out of the book of mobile gaming apps — which makes up 50% of total industry ad spend, according to Adjust’s recent Partner Benchmarks report. The report explains that user acquisition strategies in the gaming sector encompass extensive automation and A/B testing as well as gamification — practices that are proving valuable to other verticals too.

Finally, apps placing too much importance on customer acquisition risk losing out on the value of existing customers. In fact, Profit Well has found that a 5% increase in customer retention can boost your bottom line by 25% to 95%. So, while attracting new users is important, keeping the ones you have may be even more integral to long-term success.

According to Vaknin, “A lot of developers invest too much in UA compared to the retention of currently active or paying users. Research shows it’s more efficient to focus on retention and improve the experience of existing users.” In addition to creating personalized experiences where possible, apps can also boost retention by rewarding engagement, using gamification, and continually optimizing UX based on user behavior.

Today’s mobile app developers and advertisers aren’t resigned to sky-high CAC, even if those costs continue to rise. They will, however, have to get creative in order to combat this uptick in expenditure on customer acquisition. This means leveraging the power of industry partners, exploring new ways to track user data and personalize experiences, building brand trust, adapting to new platforms, and more. The industry players that manage to do all of this will be the ones that are able to thrive in the post-ATT world and capitalize on the expansion of the mobile app ecosystem.