Apr 22 2013
If you are doing your own Search Engine Marketing (SEM) paid search campaigns, you may wonder what is some of the metrics for SEM you can use to measure the effectiveness of your campaigns.
Return on Investment (ROI) is often used as a simple and efficient metric to measure how well the digital marketing budget has been utilised to bring a monetary return to the company. However, to measure further and to breakdown the campaign across different levels, more metrics may be required to shed more insights on the campaign performance.
In this topic, we will cover some of the top few metrics which are simple yet able to produce insightful data:
1) Click Through Rate
Click through Rate (CTR) are often used to measure how well the ads are performing. If one has not learnt about CTR before, one may be overly too concern with the number of clicks that the ad may achieve. CTR provides a holistic approach by measuring the number of clicks relative to impression garner on the ads.
Henceforth, CTR = Number of Clicks/Number of Impression X 100%.
It is important to note that if your ads incur too many impressions and little clicks, the Google Adwords system (if you are using this for Paid Search) may actually increase your Cost per Click (CPC). This is because the Google Adwords system has been made to work hard to show impression but the ads are unable to garner clicks and gain revenue, it then compensates by increasing the CPC so that once a clicks occur, it would gain more revenue from an aggregated scale.
2) Cost per Lead (CPL)
Cost per Lead refers to the amount it would cost the advertiser when the publisher generates a lead for the advertiser’s business.
3) Cost per Acquisiton (CPA)
Cost per Acquisition is similar to Cost per Lead where it charges advertisers base on conversions.
If you are using Google Adwords, the Adwords System has a tool “Conversion Optimizer” which is able to help you maximize conversions for a specific budget. In using Conversion Optimizer of the Adwords system, you can state a maximum CPA bid for the campaign. You can set a maximum amount you are willing to pay for each acquisition or lead and allow the Adwords system to optimize the leads generation base on the total budget you have set.
4) Return on Ad Spend (ROAS)
One of the favourite KPI used for digital marketing is Return on Ad Spend as it is one of the easiest to measure. The formula is
ROAS = Revenue / Amount Spend on Ads
If the advertiser has made $5000 in revenue by spending $1000 on ads, the ROAS will be equal to $5000/$1000 = 5. This means for every $1 spend in ad, the business is able to generate $5 in revenue. One of the enigmas for businesses is to figure out how to increase their ROAS factor. For some business, ROAS ratio of 3:1 may be considered healthy but for others, a ratio of 9:1 may be necessary for the ads to break even in profit. It varies from business to business.
One recommendation would be to figure out what is your average ROAS factor base on your past 1 year data. Thereafter you can attempt to re-strategize your marketing strategy and budget to increase your ROAS.
By combining these metrics together would help you achieve a more holistic digital marketing management. For instance, when you are able to achieve a high CPL and low ROAS, it means the leads generated have not been very profitable. If the campaign generates low CPL and Low ROAS, the campaign itself does not seem to be very effective in producing revenue though cost on acquiring leads is seemingly low. If your campaign generates low CPL and high ROAS, Bingo! This will be ideal, as you are acquiring leads at lower cost and maximising revenues from the leads.
With these simple metrics and making sense of them in your campaigns, this may be a start of a very profitable digital marketing strategy for your business!