Much emphasis is on how to launch, set, run, target ad campaigns. No objections, it's extremely important and valuable. And what about 'how to create an effective campaign'? Who and how can dare predict the future effectiveness of your own campaign? Nobody, we guess, except for yourself! And it's not so much about prediction as about calculation, analyzation, and measuring. What's the object of doing that? Let's get to the bottom!
Why is it necessary to evaluate the effectiveness?
A process of campaign monitoring and result evaluation requires significant time and financial expenditures. First of all, it's essential to carry out tests, then while a campaign is running, you need to keep a close watch on every performance and calculate certain metrics. The activity includes an array of manual operations, application of automated tools, the involvement of additional human resources. We won't hide it, all that costs a sight of money. It seems painful, doesn't it? Yeah, a bit, but only from the one hand. What about the other one? If you get off the beaten track, you'll arrive at an idea that advertising is not about endless dissipation of resources and going down the dumper, but about the sort of investing that has to be justified.
Any investor in any field is likely to be eager to know whether his investments pay off and yield results or not. Evaluation of ad performance will show you if your campaign works well for your business or it needs to be modified.
The more you monitor and analyze, the more data you get. As one expert stated, "Big data can tell us what's wrong." And when you know what actually is, you can easily correct it to steer on the right course.
An argument for your investment and profit brought by it, and unveiling weak spots of your campaign have cut no ice with you, haven't they? Well, we have more arguments.
Do you want to be well aware of your advertising activity? Do you want to predict the results and get the desired ones accordingly? Do you want to be in the loop and control your own business process? Do you want your success to entirely depend on you? If this is the case, then effectiveness evaluation will definitely lead you to it! To coin a phrase, what you measure, you manage. Is there any reason to run a business without managing, almost blindly? We don't think so, neither do you, we hope!
Measuring the effectiveness
Measuring ad campaign performance may seem both dull and uneasy, especially at the start. Keep your chin up and arm yourself with patience! Let's treat these tedious computations as solving mathematical problems that will eventually bring us to our goals.
To make it easier and more illustrative, we suggest that you wrap your mind around a sales funnel and its stages. Let's recall them: awareness, interest, decision, action. You are leading your customers through the funnel and expect them to perform certain actions and get desired results. Therefore, every stage has an important parameter to be noticed and a metric to be calculated and measured accordingly. We're going to define the main ones for every stage of a funnel. Measuring campaign effectiveness by stages will help you consider and evaluate it from a holistic perspective.
1. So, in the first stage, it's necessary to evaluate the effectiveness of the advertisement itself. It is usually expressed in terms of click number and impression quantity. Thus, there are two main metrics here: CPC and CTR.
CTR (click-through-rate) is the ratio of impressions to clicks, the qualitative measure of clickability that shows which platforms bring more referrals. CTR will give you an insight into how often users click on your ads after viewing. Keep in mind that it's an interim target, for a click doesn't guarantee a purchase, it reflects whether your ad attracts customers or not. The value hinges on content (titles, text, images) quality and relevancy, proper keywords usage, and targeting accuracy. The metric is calculated by the following formula:
CTR = (total number of clicks / total number of impressions) * 100
The higher your CTR is, the more your ad stands out from the rest, that is, you get a significant competitive advantage. You should always strain after a higher value. On average, 2% CTR is considered to be good, but much depends on the industry you involved in and a level of competition in your niche.
Another metric that should be calculated in this stage is CPC (cost per click). It's a charge for the desired click on your ad. The figure shows the cost-effectiveness of your ads. CPC value is dependent on the quality of targeted traffic.
CPC = total cost of clicks / total number of clicks
It's rather hard to answer a question, which is a normal average CPC since it depends on and varies greatly due to several factors: your product or service, ad platform, advertising type, bidding strategy, audience, industry. Bear in mind that you shouldn't judge by average values or rely on someone else's ones, you should go mostly by your own results.
Below is the list of some average CPCs, just for your reference.
Some CPC values from UngAds by formats.
It's notable that there is an inverse relation between CPC and CTR. The higher CTR is, the lower click cost is, and vice versa.
One more thing to point out, if this refers to banner advertising, then we should calculate CPM (cost per mille) instead of CPC, that is to say, the cost of one thousand views instead of the cost of the click.
CPM = cost / impressions * 1000
Some CPM values from UngAds by formats, for your reference.
See more info on traffic volume and prices here https://ungads.com/promo/traffic-volume?utm_source=blog_campaign_effectiveness
2. Moving on, let's consider the second stage when a user got interested in your ad and linked to your website. The main evaluation criteria here are the bounce rate and the amount of time spent on your website. They show whether your traffic is targeted, whether users have difficulties on your website, provide insights into the behavior of visitors and how they interact with your resource, etc. You can evaluate the bounce rate using the following formula:
Bounce rate = total one-page visits / total website visits * 100
As a rule of thumb, the metric value should be within the range of 25 – 40%.
The amount of time spent on your website is usually calculated with the help of additional tools, trackers, or analytic apps (we'll speak about them later). When you get this time value, you can judge by the following:
- 2 seconds – a visitor regarded your content useless;
- 2 minutes – a visitor manifested a slight interest in your content and skimmed through it (or watched a video);
- 15 minutes – a visitor had taken the time to study your content thoroughly because regarded it as extremely useful and ultimate.
3. The third stage is about a decision when a user makes up his mind whether to add a product to a cart, make a request, complete a form, subscribe, call, etc., in other words, to perform some action. And here we are to analyze this performance by calculating two main metrics: CR (conversion rate) and CPA (cost per action).
CR is a ratio of total website visits to a number of desired actions performed by users. Although conversions (actions performed) still don't guarantee a purchase, they move closer to it. This rate depends on your website usability, traffic quality, users' interest in your product or service, etc.
CR = total number of visitors that performed the desired action / total number of visitors (leads) * 100
A good conversion rate is deemed to be around 2% to 5%. But we are going over the ground again – much depends on your industry. You can draw on Google AdWords benchmarks, for example.
As to CPA, this metric is to analyze the effectiveness of SEO, content marketing, and email marketing; it demonstrates the cost of the action performed.
CPA = advertising expenses / number of desired actions
The average value of a CPA is dependent on the industry as well. Additionally, this cost differs according to the action type, whether it's a simple registration or a purchase, etc.
4. The last stage relates to the action performed. And here, we should evaluate the efficiency of investments, whether our expenses pay off and yield the intended results or not. The return on investment can be shown by two metrics: ROI and ROMI. The difference between them is that ROMI reflects effectiveness in terms of marketing expenses, while ROI – in terms of overall expenses.
ROMI = ((income from marketing - cost of goods - marketing expenditures) / marketing expenditures) * 100
ROI = (net profit / total costs) *100
You should be striving for a higher value of these metrics, as the higher they are, the more your profit is. Marketers assert that a good ratio of revenue to cost should be over 5:1.
LTV (lifetime value) is another important metric; it can tell you how much revenue might be brought by one customer throughout your cooperation. That is, it shows the net profit from one client over the entire period of your relationships. The metric can help you work out your marketing strategy more precisely by comparing LTVs of customers from different audiences and figuring out which one is more profitable. There are several ways and formulas to calculate LTV, for example:
LTV = average value of sale * number of transactions * retention time period
LTV = profit from a client - expenditures for customer engagement and retention
The higher value of LTV is, the better.
One more metric to evaluate effectiveness in this stage is a share of advertising expenses. It's a ratio of expenditures to net profit. Obviously, the lower this metric is, the better.
Share of advertising expenses = expenditures for advertising / profit from advertising * 100
We've described only the main metrics; there are a good deal more of them. Nobody can say for sure which ones might be suitable for your campaign; this choice depends on the situation, your targets, and business specificity. For instance, if you evaluate the effectiveness of an info resource, then CPA will be a key metric. If it's an online shop, then ROI and share of advertising expenses are crucial values.
The main point is to properly set your analytics, as it helps you get most metrics automatically without manual calculations and beating your brains. Let's see now how to make it easier.
There are a lot of various tools and analytic programs that can provide you reports containing info on clicks, impressions, traffic sources. They have similar operation principles and aim at simplifying your evaluation efforts.
Thus, if you run campaigns on social media, for example, you may use built-in social services, like Twitter Analytics, conveying information about your audience: location, interests, clicks, etc. LinkedIn Analytics tool is able to analyze traffic and engagement in real-time, measuring the ROI of your ads and campaign performance.
The most widespread service is Google Analytics. It's the most powerful and universal tool that is able to generate a detailed report containing main metrics, such as CTR, number of clicks and impressions, bounce rate, time spent on a website, CPA, ROI, LTV.
Another similar service that can provide you with general and main data is Yandex.Metrica.
We can also mention such tools as Marketo, a popular marketing ROI instrument that shows all key data in a simplistic form, RapidMiner, a service that can display both current data and the predictive ones.
Additionally, you will find a variety of special instruments to measure the results of contextual ads, targeted ads, as well as to gather video statistics, tools to track calls, systems to track and evaluate the effectiveness of conversions, and so on.
Summarizing the above, campaign evaluation practice has a great impact on overall business success; therefore, it should be an integral part of your marketing activity. Measures of effectiveness are fundamental data that allow you to leverage your marketing budget to increase your return on ad investments. These calculations and analytics motivate you to improve the quality of ad content and boost your skills to engage customers' attention and drive loyalty. As a result, you increase the volume of sales by tens of percent – the mere net profit, nothing extra!