Measuring the ROI of marketing budgets often feels like attempting to fix global warming. It's long, complex, and daunting -- but you know you have to do it. This is especially true in these trying economic times, where accountability has been both a blessing and a curse for the digital marketing industry. Clicks gave us an early advantage, until we were forced to rationalize miniscule click-through rates measured in the tenths of a percent.
Then came the ability to measure "conversions"-- post-click and post-view sales -- which again helped us paint an ROI-centric story. Google is most notable for connecting the two dots, and has built a phenomenal business by simplifying the ROI equation to clicks, and direct sales from those clicks. Ad networks also rose from the ashes of the bubble burst by standardizing the pay-for-performance pricing model and monetizing billions of impressions that typically went unsold.
Today, the appetite for "pay-for-results" media seems almost insatiable. Search and ad networks dominate most modern media plans from agencies and advertisers, and the justification of these dollars is plain and simple. Call it "cost-per-sale," "cost-per-conversion," or "return-on-ad-spend" -- these are all terms for ROI metrics that have largely become standardized online.
First, a quick primer on how ROI is measured online: Known as the "last ad" standard, almost all reporting that keeps track of these metrics is based on a very simple methodology. When a conversion (i.e., any digital success event, for example: a sale, lead generation, or software download) occurs online, all of the credit is attributed to the last ad clicked -- this is known as a "post-click conversion."
If there are no ad clicks, but the advertiser's ads reached the customer prior to the sale, a "post-view conversion" is counted and associated with the last advertisement. At the end of the month, sites delivering the most post-click and/or post-impression conversions for the least amount of money are the winners and get more budget.
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