This is part 1 of a series on putting together the best advertising mix.
[You’ve got your site, product, creatives, maybe even a budget, and your agency rep is presenting you a dozen strategies to choose from. This is one of the steps in the marketing process that can make or break an entire campaign, and you really don’t want to go about it the wrong way, but just how do you determine the best way to allocate your budget?
There is unfortunately no single marketing mix that will work great every time, but there are clear patterns to follow, and I’ll be sharing a few of them on this blog series.]
In this installment, I’ll be focusing on some of the seemingly abstract math used to measure success on digital campaigns: Metrics. Let’s start with some background and definitions:
- Click-through Rate (CTR)
- Math: Clicks / Impressions * 100
- Example: 500 Clicks / 750,000 Impressions *100 = a CTR of 0.067%
- Cost per Click (CPC)
- Math: Ad Spend / Clicks
- Example: $5,000 Spend / 2,000 clicks = a CPC of $2.5
- Cost per Acquisition (CPA):
- Math: Ad Spend / Acquisitions
- Example: $5,000 Spend / 200 Acquisitions = $25 CPA
- Return on Investment (ROI):
- Math: Revenue / Ad Spend
- Example: $10,000 Revenue / $4,000 Ad Spend = a 2.5 ROI
The first two reflect clicks. This may seem self-explanatory, but it is worth examining this because the conversation tends to stop there without ever hitting the fact that clicks are really a proxy. Why do you as an advertiser care at all about clicks? If your campaign is primarily a Branding play, then the answer is “you don’t” (more on that coming soon), but let’s imagine you do, or are looking for a specific user action. In this case, clicks translate to visits to your sites. Nothing more. Why does this matter?
For starters, let’s get the bad habit out on the table: CTR. A tenaciously ubiquitous remnant of the age when the ad network was king, it is one of the most misleading numbers you can look at for reasons that boil down to cost. Let’s take a look at two ad placements that each get $1,000 spend:
- Placement A costs $0.50 CPM, with a .05% CTR: we end up with 1,000 clicks
- Placement B costs $2.00 CPM, with a .10% CTR: we end up with 500 clicks.
Since CTR does not factor cost at all, advertisers who focus on it without looking at the bigger picture run the risk of actually reducing their campaign’s clicks by favoring Placement B’s higher CTR, while missing that it is so much more expensive that it actually yields fewer clicks. Cost Per Click is the much preferable alternative that measures click performance by factoring the cost of impressions served. Facebook is an excellent example of a site that paradoxically gives both great performance and low CTR’s, all because of its low cost.
Even better, however, is CPA, an effective way to cut through the proxies (clicks, site visits, etc…) and get to what matters. The beauty of this metric is that you can set “Acquisitions” to mean whatever you want and determine if a vendor or strategy is working well for you. Whether you’re looking for leads, email signups, or even video views, set that action as your “Acquisition”, and CPA’s will give you a quick and easy way to evaluate which strategies are giving you the best value.
ROI (investment bankers may note that the Digital Advertising formula is simpler than its investment counterpart) is a natural fit for shopping cart advertisers looking for transactions, but if that is not you, it may still serve if you are trying to generate several different kinds of Acquisitions: consider assigning each of your desired user interaction a monetary value. You can then share this with your agency and vendors, and they will then be in the best position possible to give you the most for your money.
Questions? Not sure what or how to measure any of these? Reach out to your agency representative and let them help you tailor the best possible way to measure a successful campaign for you.