PPC: 4 Must use campaign metricsReading Time: 3 minutes
Take a look at our 4 must use metrics – all essential in understanding what drives a profitable PPC metric led campaign.
PPC Metric #1 – ROI (Return On Investment)
ROI is so important as it justifies you putting resources and efforts towards an action.
Many businesses get stumped when it comes to ROI because they aren’t confident in their numbers, and may not have historic advertising data to benchmark against.
However, understanding where your break-even and profitability points are doesn’t have to be complicated or time consuming. Check out the formula we use to help establish ROI for a new campaign investment.
(Profit – Investment) / Investment = ROI
Example: ($2,500 profit from new business – $500 advertising) / $500 advertising = 400% ROI
By setting base metrics and applying these to see if a campaign has the potential to work, you’ll also be able to optimise accordingly during the campaign to ensure minimum targets are met.
Optimising your campaign may include a whole host of actions including; Cutting out non-performing keywords, adjusting device/demographic bids, testing new ad copy and angles, altering landing page design etc.
PPC Metric #2 – CPL (Cost Per Lead)
CPL or Cost Per Lead is a key metric you can use to analyse your campaign or undertake preliminary research to understand what you need to achieve to ensure your campaign is profitable.
When calculating CPL we often use this basic formula:
Cost Per Lead Formula:
Advertising budget / Number of leads = Cost Per lead
Now, it’s fair to say that for many campaigns you won’t have all this information, so here’s how you can use the role of estimation to help in your calculations:
1. First, find the number of leads you think you can get from the campaign:
(Advertising budget / Average CPC) x landing page conversion rate = Number of leads
($1000 / $5 CPC) x 10% Conversion Rate = 20 leads
2. Then figure out approximately how much it costs per lead:
Advertising budget / Number of leads = CPL
$1000 / 20 leads = $50 per lead
This quick calculation will help you gauge the performance of your campaign and set some short term goals. Keep in mind with any advertising campaign there is a 3-4 week ramp-up period, so its highly unlikely you’ll hit peak performance from day 1 (so plan for this in your budget).
Also, don’t forget about conversion. We often find that best conversion rate percentages are achieved by using a laser-focused landing page. Typically, when a customer comes to us they are using their website or non-optimised landing pages, and these convert at around 2% throughout the whole campaign (one of the reasons why we typically suggest they don’t carry on doing this).
Tip: Laser-targeted landing pages are perfect for reducing your cost per lead, driving up your conversion rates, and boosting your ROI.
PPC Metric #3 – Close Ratio
The next step in understanding your metrics is your close ratio. Simply put, this is the percentage of leads you are converting to sales.
Number Of Sales / Number of Leads = Close Ratio
There are lots of things that influence your close ratio including:
- Your follow up process
- How quickly you follow up
- Your offer
- Brand awareness
But there a lot of things you can also do to improve your close ratios, such as:
- Pre-qualifying candidates through ads copy, landing pages, and forms
- Cutting underperforming keywords
- Creating highly targeted offers
In general, a good close rate is 20-30%, but this can vary drastically.
If you aren’t exactly sure what your current close rate is, that’s ok. We often suggest using 20% as a guideline. When your campaign starts to yield results this percentage can be adjusted accordingly.
Using a close rate ratio of 20% the below formula can be used to model potential new revenue gains:
Number Of Leads X Close Ratio X CLTV = new revenue
25 Leads X 20% X $2,000 = $10,000 in new revenue
The above formula is also a great way to get buy in for an advertising investment from your MD or CEO.
PPC Metric #4 – CLTV (Customer Lifetime Value)
Another metric to dive into is CLTV or “Customer Lifetime Value”. This helps you to understand how much revenue you could generate from a customer once you’ve acquired them.
Average Number of Purchases * Average Purchase Price = CLTV
Once you’ve built trust with a newly acquired customer the ability to up-sell, down-sell, or even cross-sell services to them becomes much easier, enabling you to increase CLTV.
Also, you can often multiply your results by asking your customers for referrals inside of their network. Offering an incentive like a discount, free month of service or kickback on sales can all be great incentives to achieve this.
By understanding your CLTV, you can be more aggressive with your advertising both from a new customer acquisition perspective and allocation of budget for existing customer retention and getting them to buy multiple times from you.
If you want to use paid advertising to grow your business it’s vital to understand each of the above key metrics in order to make confident investment decisions.
Need help with your PPC strategy and management? Please get in contact with Advocate team today.