Top Paid Media KPIs and How They Work Together
There are a variety of key performance indicators (KPIs) that can be used to measure the success of your paid media ads. Before defining what the most important KPIs will be for any given paid media campaign, you need to understand the campaign’s goals and desired outcomes. Is it to increase sales? Drive revenue? Grow the sales pipeline?
After goals and desired outcomes have been defined, the next step is to dive a level deeper and determine the specific KPIs that should be tracked and monitored.
In this article, we discuss commonly used paid media metrics that marketers rely on to track campaigns. These metrics can be used regardless of channel or vertical. Keep in mind that the ideal KPIs for your campaigns may vary from the ones listed here—it all depends on what is relevant to your specific paid media strategy.
1. Conversions
Conversion = desired website (or in-person) action
A conversion can be almost anything, but usually, businesses define them as a relevant action taken on a website. Conversions can even go as far as in-person store visits that are tied back to digital marketing campaigns. The possibilities of how a business can or should define a conversion are endless, allowing you the freedom to track conversions as you see fit.
When choosing what qualifies as a conversion for your campaign, keep in mind what your end goal is. Should conversions be geared towards generating more online purchases? Form fills? Email registrations? After you define a conversion, your marketing team can track the various KPIs that affect this action.
The majority of paid media KPIs are related to one main goal—generating conversions at an efficient cost. However, conversions are only one piece of the puzzle. In some cases, your goals and objectives may go beyond generating conversions.
2. Cost Per Conversion
Cost per conversion = advertising cost / conversions
Cost per conversion is the amount a business pays for each relevant action taken on the website. For example, if an advertiser pays $100 to promote their brand during a given period and they generate one conversion, the cost per conversion is $100.
The price of conversions influences how much you need to spend to reach your goals. For example, imagine a business has a goal of 10 sales-qualified leads per month, and they know it takes approximately 100 paid media leads to reach this goal. Now, let’s add a budget of $10,000 per month into this equation. In order to generate 100 leads per month, the cost per lead cannot exceed $100.
There are many factors that can affect the amount spent per conversation. If competitors begin to bid and spend more during a busy season, this can increase the amount you have to pay to consistently drive clicks to your site. This, in turn, can increase the cost per conversion if all other variables are held consistent. Keeping tabs on the competition and frequently checking, tracking, and adjusting your campaigns can help you avoid an unexpected hike in cost per conversions.
Looking to lower your cost per conversion? Conversion rate optimization (CRO) may be able to help. This service focuses on improving the UI and UX of a website, incentivizing consumers to convert on a more frequent basis. By making your website shopping experience more seamless for your consumers, your conversion rate is likely to increase and the cost per conversion is likely to decrease.
3. Conversion Rate
Conversion rate (CVR) = conversions / clicks
Conversion rate is found by taking the number of conversions over a given period and dividing it by the number of clicks to a website. Some campaigns may track multiple kinds of clicks, but generally, conversion rate takes into account all the clicks that were attributed to your campaign.
Conversion rate is influenced by factors such as website UX, website UI, cohesiveness between ad messaging and website messaging, discounts and coupons, advertising competition, and even how well a product or service is received in the marketplace.
As marketers, we are in the business of testing, especially as it relates to improving conversion rate. And if our tests fail? We try again until they succeed. After changing elements on a landing page for one of our clients in the education space, we saw a 2,200% increase in website form submissions over a three-month period. The possibilities for testing are endless, and the results are worth it!
4. Cost Per Click
Cost per click (CPC) = advertising cost / clicks
Cost per click is the amount an advertiser pays for the traffic driven to a website. There are ways to reduce the amount paid per click, however, much of this cost is determined by the competition. More competition (higher competitor ad spend) during a busy season usually results in a higher click cost, which can affect KPIs such as conversion rate and cost per conversion.
You may be wondering, “If I can’t control what the competition does, then how can I avoid a high cost per click?” Usually, this comes down to the overall efficiency of the campaign. If you have a campaign with a low CPC and a low cost per conversion, you might choose to allocate additional budget towards this campaign. Other factors such as quality score can play a role in what advertisers pay per click as well.
Specific to Google, quality scores are meant to show you how your ads compare to the competition. They take into consideration factors such as landing page quality, ad relevancy, expected click-through rate, keyword bids, how well similar ads have performed historically and more. If Google determines that your ads are of high quality, it’s likely that you won’t have to pay as much to remain competitive. Most platforms have some version of this algorithm running behind the scenes.
5. Cost Per Thousand Impressions
Cost per thousand impressions (CPM) = Advertising cost / total impressions * 1000
Cost per thousand impressions is the amount advertisers pay for 1,000 impressions on an ad. Cost per thousand impressions is looked at more closely when a business is wanting to accomplish an objective that involves increasing brand awareness.
The more efficient a campaign is with this metric, the more brand awareness the campaign can generate. Similar to cost per click, this is metric is subject to the competition, but there are also a few ways to reduce this cost through optimization.
Certain types of campaigns are designed to maximize impressions as opposed to conversions. To reach your goals, it’s important to choose your channel and campaign type wisely. For example, if a new, relatively unknown business has invested heavily in video content, YouTube may be a great place for them to start a brand awareness campaign. The main reason this company would want to choose YouTube is because of the platform’s low cost per view benchmark and high engagement rate compared to other platforms. The platform also has robust audience targeting capabilities.
When you utilize multiple channels simultaneously, you can create synergy between different paid media campaigns. More specifically, brand awareness campaigns ran on social media channels can increase Google searches for your business, which can lead to increased impressions for your paid search ads. Running promotional messaging across both channels can help you maximize your advertising potential.
Focusing on the Right KPIs for Your Campaign
There are metrics outside of these five that play an important part in paid media strategy (bounce rate, new customer acquisition cost, etc). In the ecommerce vertical, metrics such as return on ad spend and average order value become vitally important.
At IDX, we take the time to identify and understand your target audience, so we can customize our paid media services according to your goals.
No matter which metrics you track, all of them provide insights into how well a digital advertising strategy is performing holistically. One KPI affects many others, like dominos falling in a line.
If you are ever unsure what a “good” or “bad” KPI is, industry benchmarks are a great place to start. And remember, the main thing to focus in a few key KPIs, instead of getting overwhelmed by dozens of them.
For more information on paid media best practices, feel free to get in touch with our team.