It depends on client goals but generally revolves around total ad spend and total conversions. From that you can derive your CPA.
If the client wants to scale you may look for a stable CPA and more conversions/spend. If the client wants to work on lowering CPA, you’re looking for that. If a client wants to cut costs, lower ad spend and generally lower CPA too.
If you’re tracking revenue then you’d use ROAS instead of CPA.
All other KPIs can be up or down and it isn’t good or bad for the business. For example, higher CPC, perfectly fine if you’re bidding up for a purpose. Lower impression share, fine if you have to cut your ad spend on a particular campaign. The important thing is what you expect to happen is actually happening.
This article will challenge you to re-evaluate your entire PPC approach and pinpoint the factors that truly fuel profitable campaigns.
Metric #1 – ROI (Return On Investment)
Many businesses miss a crucial factor when planning marketing campaigns: ROI, or Return on Investment. This metric assesses the effectiveness of your efforts, demonstrating whether they’re worth the allocated resources.
Unfamiliarity with ROI calculations often leads to hesitancy when investing in advertising. Seeing funds spent without a clear understanding of potential returns can be daunting.
We believe marketing is a science, but precise initial estimates aren’t necessary for a solid ROI projection. By showing the math behind effective advertising, we help businesses gain clarity and confidence.
During our onboarding process, we collaborate with clients to identify their break-even and profit points, allowing them to understand the campaign’s potential impact. So, let’s embark on calculating the ROI for your new campaign!
Imagine turning every $5 you spend on advertising into $20 in new business. That’s the power of a high ROI (Return on Investment) in Pay-Per-Click (PPC) campaigns. By calculating ROI before launching a campaign, you can ensure your advertising budget is fueling growth, not just clicks.
- Eliminating non-converting keywords: Focus your budget on keywords that drive actual results.
- Bid adjustments: Optimize bids based on device and demographics to reach the right audience at the right price.
- Fresh ad copy & angles: Test new approaches to capture attention and drive conversions.
- Landing page optimization: Convert more visitors into paying customers with a seamless landing page experience.
Our focus? Not just a positive ROI, but continuous improvement through daily and monthly optimization.
Ready to ditch the spreadsheets and discover your PPC potential? Check out our free PPC ROI Calculator and start seeing the true impact of your advertising spend.
While ROI remains the ultimate metric, understanding other key metrics like conversion rate and cost-per-acquisition will further refine your campaigns and maximize your overall success.
My rule of thumb is to focus on your KPIs. What results am I after, and how much can I afford to get them? For example, if I need conversions, how many am I getting, and at what CPA?
Everything else is secondary. If an ad’s CTR is 0.8%, but overall the campaign is getting me conversions at a great CPA then that campaign is a success.
Sure, that CTR tells me there’s much room for improving those results even further, so I start working on experimenting with newer ads to see if that number can be improved.
Now imagine the opposite scenario. You have a campaign that is getting you conversions at CPAs you can’t afford. But your ads are working amazing and have 6% CTR. Would you consider them a success? I definitely wouldn’t. They are certainly getting people to click, but they are clearly not conveying the right message, as people then fail to convert.
Of course things are usually much more complicated than this, and failure or success will be driven by many variables combined, not just one.
But in my opinion you should never make decisions based on secondary metrics (CTR, CPC, CPM…) alone, bur rather on your one KPI (results: conversions, initiate checkouts, website visits, leads, sales, CPA, CPL, CPI, App Installs, etc…), and use the others just as hints of what can be optimized to improve your overall results.
Metric #2 – CPL (Cost Per Lead)
A simple formula exists to calculate your CPL, empowering you to analyse and refine your strategies for maximum lead generation efficiency.
Without complete information at the outset, estimating campaign performance becomes crucial. Here’s how we do it:
1. Lead Estimation:
We start by estimating the number of leads we expect the campaign to generate. This is done using the following formula:
Number of leads = (Advertising Budget / Average CPC) x Landing Page Conversion Rate
For example, with a budget of $1000, an average CPC of $5, and a landing page conversion rate of 10%, we estimate acquiring 20 leads.
2. Cost Per Lead Calculation:
Next, we calculate the estimated cost per lead (CPL) using this formula:
CPL = Advertising Budget / Number of Leads
In our example, the CPL would be $50 per lead ($1000 / 20 leads).
This quick calculation helps gauge campaign performance and set achievable short-term goals. Remember, any advertising campaign has a ramp-up period, often 3-4 weeks. Don’t expect immediate results.
The high conversion rate (10%) is achieved through laser-focused landing pages designed specifically for the campaign.
Customers often use their website or generic landing pages, which typically convert at a much lower rate (around 2%).
We believe in the power of targeted landing pages to significantly reduce CPL, increase conversion rates, and ultimately boost your ROI.
For E-commerce Clients – Main focus should be ROAS with emphasis on testing the CTR% & clicks of the ad copies. As the campaigns continue to launch – add ‘Frequency’ as a metric in your columns. You don’t want to get caught re-serving the exact ad over & over again to the same people. This can affect your customer feedback score.
For Lead Gen Clients – Main focus should be results (usually leads on a landing page form) & CPA (Cost-per-acquisition/cost-per-lead)(everyone changes terminology lol) – CTR% & clicks on ad copies. Again, frequency is important to monitor.
Metric #3 – Close Ratio
After analysing your lead generation metrics, the next crucial step is understanding your close ratio, a key indicator of your advertising effectiveness. In simple terms, it reveals what percentage of your leads successfully convert into closed deals.
Multiple factors influence your close ratio, including follow-up strategy, speed, offer, and brand awareness. However, several advertising strategies can significantly improve it.
Pre-qualifying leads through ad copy, landing pages, and forms ensures you reach the right audience. Additionally, cutting underperforming keywords and crafting highly targeted offers optimize your campaign for maximum conversion.
While a good close rate generally falls within the 20-30% range, this can vary significantly based on industry and specific circumstances. If you’re unsure of your current rate, start by using 20% as a benchmark and track it as leads convert over time.
This revision maintains the original word count, emphasizes key information, and incorporates relevant keywords for improved search engine discoverability.
New Revenue Formula:
Understanding the relationship between lead volume, conversion rate, and customer lifetime value (CLTV) is crucial for maximizing revenue potential. Consider this:
25 Leads x 20% Conversion Rate x $2,000 CLTV = $10,000 New Revenue
Such specific calculations illuminate the true impact of your marketing efforts and simplify ROI analysis.
Presenting these figures to clients or management empowers informed decision-making while setting campaign goals.
A decline in close rate compared to previous periods triggers a thorough campaign optimization process, ensuring lead quality remains high.
If your keywords are strategically chosen, consider optimizing your messaging to attract better-qualified leads.
This pre-vetting process refines your audience, maximizing your conversion potential.
Metric #5 – CLTV (Customer Lifetime Value)
Another key metric for understanding your business’s financial health is CLTV, or “Customer Lifetime Value.” This metric helps you determine the average revenue you can expect to generate from a customer over the entire course of your relationship.
It’s vital for comprehending your break-even point and achieving a positive return on investment (ROI).
For example, in a service-based industry like HVAC, CLTV can range from $5,000 to $10,000 on average. Remember, this average is calculated over the entire lifetime of the customer relationship, not just the initial sale.
This means that while you may not see the full $5,000 to $10,000 immediately, consistently retaining customers and building strong relationships can significantly impact your long-term profitability.
When new leads land in your inbox, remember – it’s not always a straight shot to a sale. Nurturing these prospects through helpful follow-ups can lead them to trust your brand and become loyal customers. Once that trust is established, repeat purchases are highly likely.
But the journey doesn’t stop there. Each lead presents an opportunity to deliver even more value. Consider offering complimentary services through up-selling, down-selling, or cross-selling. This personalized approach not only enhances the customer experience but also boosts your Customer Lifetime Value (CLTV).
And don’t underestimate the power of referrals! By offering incentives like discounts or free services, you can leverage your satisfied customers’ networks to expand your reach and gain valuable new leads.
Understanding your CLTV empowers you to optimize your advertising strategy. By knowing the potential lifetime value of each customer, you can be more efficient and even more aggressive in attracting new leads and nurturing them into loyal brand advocates.
If you’re having trouble managing your Google PPC campaigns, it may be time to consider outsourcing your paid advertising to an experienced agency like Great Guest Posts.
Remember, in the fast-paced world of PPC, these metrics are your navigational stars. Sail by them wisely, and you’ll chart a course to PPC success that not only captures clicks but converts curiosity into concrete results.