What metric should I pay attention to, you might be asking yourself? What’s in it for my business’ bottom-line?
Many marketers find themselves asking these same questions after launching paid search campaigns, and fail to apply the right answers to these questions.
In this article we’ll walk you through some “must have metrics” you should pay close attention to, in order to start improving your return on investment immediately.
ABC – “Always Be Converting!”
This is one of my favorite quotations from an old movie classic about converting, Blake’s rules (Alec Baldwin) from Glengarry Glen Ross, translated into the language of Analytics.
The first step is to understand that with Paid Search and Analytics it’s all about your goals. These should be your key performance indicators (KPI). The top goals you should focus on are:
A) your total amount of conversions
B) the conversion rate at keyword level and how that affects your Return on Ad Spend
Metrics like Quality Score, CTR, and Ad Position, are factors you can improve and tweak in order to reach your goals, where conversions are the ultimate goal for ALL businesses; whether it’s a direct sale or a non-transactional goal such as a call, lead, sign-up, download, blog comment, etc.
There is so much data to comprehend in Analytics, so aim to select some areas that are important for your business to measure.
Basically you must start out by asking yourself: What is the purpose of your website? What goals do you wish to measure? And, what is the value of each goal?
Goals will help you distinguish quality traffic from low quality traffic.
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Metric 1) Goals and their value
When running an e-commerce website your goals are pretty straight forward. You want to track the purchase-confirmation page and calculate the revenue generated from each transaction. With this precise goal calculation, it’s easy to determine your return on ad spend (ROAS), which is simply using the formula:
- ROAS = ad revenue / ad spend.
For example, if your ad campaign spends $15.000 and your revenue from this ad spend is $20.000, your ROAS is:
- ROAS = $20.000 / $15.000 = 1.33 or 133%.
But beware of ROAS vs ROI (Return on investment).
ROI = return (gross margin) – marketing investment
Of course having a positive return on ad spend isn’t always enough when considering other related operational expenses, and you should strive to attain a rewarding ROI for your business. But before you start fixating on ROI, remember that many other factors come into play, for example the value of a new customer, market share, etc.
New Client Value
Ahead of determining the value of your goals, you should project how valuable new business is for you, e.g. what are the probabilities of this being a repeated business transaction?
When a customer purchases from you again, this means that you have complete overhead on that transaction. You will most likely not have paid much for that second purchase.
If your typical clients always purchase a 2nd or 3rd time, then try to calculate this into your return on ad spend in order to open up for additional marketing channels.
Also, ask your self if your product/service is so good (of course it is!), that your new clients may refer you to friends, family and business associates.
Metric 2) Cost per conversion
With these metrics in mind, you are able to calculate your cost per conversion, which is the next step in your path to achieving maximum effectiveness of your advertising budget.
Your cost per conversion is the advertising cost you end up paying after a customer goal completion.
For example, if you spent $10.000 last month on AdWords, and generated 200 new sales (conversions), your cost per conversion would be $50.
Cost Per Conversion = Advertising cost / total completed goals
It’s important to take all factors into account before your assess the month’s performance. For example, how long is your typical sales process? How many valuable leads did the campaigns generate besides sales, leads that eventually will convert into sales, once the lead works its way down your sales funnel?
In scenarios like this, I suggest setting up multiple goals in Analytics, with different goal values for each action.
Metric 3) Conversion Rate
As mentioned earlier, a conversion or goal completion can be many different actions a visitor can perform before leaving your website again. These actions produce measurable outcomes for your business. This is why you pay particular attention to the conversion rate of those products or services which generate the most revenue.
For instance, you might have a conversion rate as high as 50% on a particular product, but if this product only give your business a fraction of the profitability in comparison to another product with a conversion rate of 25%, you should definitely increase your efforts towards optimizing the 25% converting ‘bread and butter’ product of yours.
Conversion Rate = Completed Conversions / Total number of visitors
An example could be that a keyword in your campaign generated 20 conversions coming from 200 visitors to your site, then the conversion rate would 10%.
Metric 4) Ad Position vs ROI
When linking Analytics with your AdWords account, you have the ability to measure your AdWords position ROI. In other words, find your “sweet spot”.
Buying a top ad position in Google can bankrupt even the heftiest budgets, and in many cases a position as number 4 or 5 might be more profitable than the top position.
Again it’s all about the ROI and ensuring profitability.
So use Analytics to go beyond the ego booster bidding approach, striving to be on top of the hill, and rather build a solid and profitable keyword position strategy.
As a final note, I would like to share with you an additional favored quotation from Blake’s many rules, translated to Analytics:
AIDA – “Analytics Is Data into Action. Make your analytics data actionable. Do something with it now!”
