If you're only measuring frequency and impressions, good luck in getting more online ad dollars. Red Door Interactive's president explains what metrics really matter.
This happens every once in a while. I sit down in a meeting with a prospective client and the people in the meeting ask me what they should be spending on Google AdWords. They typically have been spending some amount of money on PPC and have felt some measure of success as a result. Now they want to spend more, but are confused about how much more.
At this point, I don't really know enough about their specific business, their unique metrics or business goals, but as anyone might, I see this as an opportunity to educate them about the value of managing their internet presence rather than just seeing their site as another marketing vehicle.
There are a lot of issues with simply viewing the web strategy as another marketing tactic. One key issue is that reach, frequency and impressions tend to be the most, or even exclusively, measured metrics. It makes sense that this happens simply because those are the typical metrics of traditional media. Traditional marketers primarily want eyeballs and traffic, and then secondarily they want to see sales increase. Often the feeling of success that marketers feel when they've gotten their feet wet with a PPC campaign is that they've witnessed an increase in traffic and an increase in sales, but very little beyond that.
The connection between the traffic and sales is often not monitored as specifically as it could be. Companies need to begin to measure more business-oriented metrics related to the overarching goals of the organization and begin to draw tight connections between marketing activities and sales.
Getting there doesn't happen overnight, but companies need to establish a plan for how they're going to connect their various internet initiatives to return-on-investment (ROI) metrics. Once a plan is in place (along with hypotheses about expectations) you can work toward establishing benchmarks and goals that will guide what investments the company should make. These investments should not be exclusively advertising, but should also include tactics related to improving conversions, retaining customers, creating efficiencies and driving additional revenue for the company. For this article, however, we're going to focus on the numbers related to online advertising.
Some of the tools you're going to need in order to execute on this are:
- Web analytics software with the ability to segment traffic
- Bid management software
- Financial models
The numbers related to online advertising
Before you determine how much to spend or how much to bid on Google AdWords, you need to know what each click is worth to you. You need to understand how much a customer is worth by calculating lifetime customer value (LCV) by customer type and your conversion rate by customer type. This will help you identify your maximum cost threshold for customer acquisition expenses. In other words, once you know how terms convert and you know how much each conversion is worth, then you know what you can afford to spend.
If a term has a lower conversion rate than you can expect, try to fix it or get rid of it. If a term's bid price exceeds your threshold, either stop at your bid ceiling or move the term to your watch list. Then, maximize your spend on any vehicle or term that sufficiently returns your investment. Once you go through this activity, you open up a world of promotional opportunities beyond Google AdWords. Yahoo!, AOL, MSN, display advertising and other vehicles all become available to you.
Side note: When you are going through this process, you have to consider the value of other types of site conversions. If you depend exclusively on web conversions, you may be reducing the value of your campaigns. For example, people who do research on your site may convert in-store. There is obviously value to those visits, as well. You're going to have to spend time learning about the connection between your web traffic and offline conversions; your numbers will typically be unique to you.
Now, one of the scary pieces of this equation (beyond the fact that it really is, in fact, a mathematical equation) for many marketers is that this exercise often involves other departments of the company, namely the finance department. You're going to need your finance personnel's help to understand margin, LCV, expected rate of return and other financial metrics that will help you prove your need for budget. The more clearly you can present the data to support your cause, the better chance you have in getting the budget you need to make the advertising and technology investments.
As the internet becomes more of a prevalent and effective channel for companies, marketers are going to have to become more comfortable with numbers and technology. Marketing activities are going to be more closely measured and certain technologies, such as analytics, are going to be everyday tools.
Reid Carr is president, Red Door Interactive. Read full bio.