Today we are going to take a look at some PPC Fundamental Metrics, including Click thru Rate, Conversion Rate, & Return on Ad Spend or ROAS. Some of these terms may sound familiar to you, but these are the building blocks of measuring how your advertising is performing. I will not dive deep into every stat the search engines make available, or even everything that is utilized to manage performance, unless you want to spend the rest of the day talking PPC. Instead I will focus on what translates to driving business, which should be the result of most PPC efforts.
If you are investigating PPC as an advertising medium for your business, or have just begun advertising on search engines, this will offer a primer that can be referred to as you start crunching the numbers.
Lets first look at how PPC works for an online retailer.
- Someone conducts a search, and your ad comes up. This happens over and over again.
- From all of this visibility, your ad gets a click and they go to your site.
- Once they go to your site, they either realize they made a mistake and leave right away, or they decide to stick around and explore.
- If they find what they are looking for, they make a purchase, leading to you making money.
- This revenue you generated comes a cost for the advertising. Depending on how much the advertising costs, and how much money you made, this will define whether PPC is right for your business or market.
Now lets look at the insight we get into what just happened and what happens over and over again every day.
I will review 9 points of information, and have them broken into three buckets: Search Engine Performance, Website Performance, & of course, the ultimate measuring stick, your Bottom Line.
Search Engine Performance defines how you stand up to your competition, and when you first engage the prospect. There are two basic points of reference: Impressions & Clicks. The relationship of these two to each other defines the Click Thru Rate, usually referred to as CTR.
- Impressions, simply are how many times your ad was served. It reflects the volume of searches that are available for your particular target. From that, a user can only do one of two things, either Click on your ad, or not Click on your ad. If they do choose to Click, you incur a charge based upon your bid, and the user leaves the search engine and goes to your site.
- If impressions represent the entire audience or 100%, and clicks are the number of those who chose your ad, then clicks can be represented as percentage of this total. This is defined as the click through rate. If there are 50 impressions and 10 clicks, then 1 out of 5 times the ad was shown, it was clicked on, leading to a 20% CTR. This number is simply Impressions over Clicks.
Now that they have clicked on your ad, this means your keyword target was qualified, and your ad message resonated better than your competition. The search engine sent the traffic to your site, now its your turn to convert them.
- The most immediate response to your site is the Bounce Rate. This means they came to your site and did not proceed further than the initial page they came in on (usually referred to as the landing page). Bounce Rates are not typically reported by the search engines, but can be easily checked through most website analytic programs.
- If they did not bounce the next metric is whether there was a conversion event. This is a metric that is unique to your business, and the goal of your advertising. Typical conversions include: sale completed, lead form or call was completed, or information was downloaded from the site.
- While the activity on the search engine is important for posturing with your audience, conversions are the goals of your advertising and should be the metric used to see if your advertising is resonating. The way to measure this is with the conversion rate. If all of the clicks represent every opportunity to convert someone, 100%, the conversion rate is the percentage of those who converted. Therefore, if you divide conversions by clicks, you will get the conversion rate. So from the previous example, there were 10 clicks to the site, and if two people left right away (a 20% bounce rate), 8 people continued on, and 3 of them converted, leading to a conversion rate of 30%.
These numbers are all measure the activity of the advertising. How many times an ad was shown, how many times someone selected that ad, how many people navigated the site and did what we wanted. But this is all in the abstract unless we look at how much money its costing your business, and how much it is making.
So lets look at how the money is measured.
- There are costs with the advertising, then any events or conversions should lead to revenue. If the conversion being measured is a sale, then the revenue is the amount of that sale. If the conversion is a lead, then a value will need to be placed on that based upon how many leads close, and what the average value of the sale is. Even if information is downloaded, there should be some value attached to that action.
- The way we compare how much money is going out to advertising, and how much it is making for us is called the return, or more specifically the Return on Ad Spend or ROAS. Some compute the return on ad spend as simply the Revenue divided by Costs, but we feel this number is not sophisticated enough. We feel its important to take the costs out from the revenue before comparing, so we typically subtract Costs from Revenue, then divide that number by Cost. This way we are measuring the return minus any advertising costs.
So now we know what numbers we have, and how they relate. Let’s explore what action can come from scenarios. A lot of these situations have been fully vetted in previous Daily Concept Videos. This is meant to give a quick overview.
- First, if your Click Thru Rate is low, this can mean different things, including: your keywords are too generic causing inflated impressions, or if the searches are valid your ad copy may need to be improved upon. There may also be bidding issues. If you look at you CTR in relation to your ad position, there may be opportunities to increase your bid and raise your position, leading to a higher share of clicks. If you are taking on too many clicks, and the traffic to your site is not performing beyond the engines, you may want to again visit your keywords & ad copy, or look to lower your bids, especially if you are in the top two spots. There is a school of thought that a lot of traffic that clicks on ads on the very top of the page are not truly ready to buy. And thay by having your ad in the third or fourth position helps qualify the searcher better.
- The next area to look at is the landing page. By seeing how many people bounced and comparing how paid traffic is behaving opposed to all site traffic, a clear picture of how paid traffic reacts to your site can be seen. If the numbers are inline, then your advertising probably reflects your business well. If your PPC advertising has higher bounce rates, then there is a disconnect between your advertising targets and business targets. This may also reflect confusion or other negative reaction to your site. For instance, if they don’t where to go next, they will probably leave. If an offer that was touted in the ads is not backed up, they will probably leave. If your landing page is not welcoming to any degree, this will effect reaction once they come to your site.
- If the traffic made it past the landing page, lets see what the conversion rate will tell us. If the conversion rate is low, then there may be an issue with the path you want them to follow. A short, simple means to convert is the best opportunity to encourage the most conversions. Also, since the goal of your advertising is to drive conversions, you may want to look at your initial targeting and market landscape. Is there a spike in competition? Are you fully qualifying the traffic you are targeting? These are all answers that must be addressed to ensure your advertising is successful.
- Though the goal is conversions, they are only sufficient if they are profitable. When assessing the ROAS, you want to look at both factors, the rate of revenue coming in and the rate that cost are going out. First, are you targeting products with a high enough margin to enable success. Are they big ticket items that may need assists or influence earlier in the buying cycle? On the other end, are you monitoring your advertising regularly? A day or two of errant activity can drive costs up to insurmountable levels. It is important to understand what in your account is driving the most spend, and if that is fruitful.
- Finally, you want to make sure your business goals are consistent. Though most businesses have seasonal fluctuation, it is important not to reset the goalposts too often when trying to manage a campaigns performance. A consistent vision will allow you to build stronger and more sustainable advertising to see that vision through.
We have covered a lot of information, and I hope this has been helpful. To Learn More about Exclusive Concepts Profitable PPC product, or any of our excellent services in our suite of online marketing offerings including our Managed Conversion Testing Service, SEO Foundation or Precision Email Marketing, please don’t hesitate to contact us. Also, if you have specific questions about how your PPC Account is structured – or would like to know how your account metrics match up, sign up for one of our Profitable PPC Audits, they are quick, free, and offer some great insight in how to optimize your campaign.
Thank you, this has been Chris for Exclusive Concepts Daily Concept: PPC Tuesday. I look forward to talking to you next time.