Online advertising continues to grow. According to Nielsen’s quarterly Global AdView Pulse report, Internet display ads grew by more than 32 percent in the first three quarters of 2013 compared to the same time period for the year prior.
One distinct advantage of online advertising is its measurability. There’s data galore.
But which metrics matter most? Why?
In light of the real and anticipated growth in online advertising, we thought we’d take the time to revisit the Key Performance Indicators (KPIs) used to measure the effectiveness of Pay Per Click (PPC) advertising.
These are the indicators we provide in the monthly reports we generate for our digital marketing clients. They provide just the right amount of insights, without making you lose sight of the big picture.
First, let’s define “KPI.” Simply put, a KPI is a quantifiable measurable used to gauge or compare performance. Google and Bing offer many measureables. The most important, in alphabetical order, are:
This is a raw number measurement. It is the total number of times an ad(s) was clicked. Taken out of context and separated from other elements (cost, budget, bid price, number of ads, number of impressions, etc.), it doesn’t tell much. But it is useful for tracking trends over time.
Click Through Rate (CTR)
CTR is a measure of ad effectiveness. The formula is: total clicks ÷ ad impressions. A low CTR indicates that ads are not being clicked. An ad’s CTR is a strong indicator of its relevance to the user and overall success. Ads that suffer from low CTR should be evaluated for these elements, as well as compared to competitor ads. Consistently low performance CTR ads should be modified and, if needed, replaced or eliminated.
A conversion is a customer action that has value to a business. This customer action is defined by the company. It could be an online purchase, an application download, filling out a form, downloading a whitepaper — whatever the company deems important. In Google Adwords, you can use conversion tracking code to see which ad clicks led to these actions. Ads with higher conversion rates are the ones to keep; they are getting people to act.
Cost Per Acquisition (CPA)
Cost per acquisition measures the amount it cost for each conversion gained through your ads. It is a bottom-line kind of measurement that tells you what each new (or potential) customer is costing you to acquire.
Cost Per Click (CPC)
This is a measure of the price paid for each click of an ad. CPC is determined by Google or Bing. It is made up of several factors, including the amount of bidder competition, how much the highest bidders are paying and how many clicks the keyword is expected to get.
This is a measurement of how many times your ads were presented and, theoretically, seen by viewers. This is a purely quantitative measurement. Qualitatively, it is an indication that your ad is probably well worded, well priced and relevant.
The search networks assign a quality score to your keywords. This is calculated using a variety of factors. It is an indication of how relevant your keyword is to your ad group and to a user’s search query. The higher a keyword’s Quality Score, the lower its cost-per-clicks (CPCs) and the better its ad position.
This is the cumulative total of the amount spent on your ads. It is your bottom-line, in-total cost.
Google and Bing provide many other data points for measuring PPC campaigns. But the ones shown here are the most-monitored metrics. They are the ones we use in our monthly client reports and the ones we find provide the best high-level view of ad and campaign performance.
If you are struggling to gain a big-picture view of your PPC performance, give these metrics a try.