- Why evaluate the effectiveness of contextual advertising?
- What to consider when analyzing the effectiveness of an advertising campaign?
- Key performance indicators of contextual advertising
- How to evaluate marketing performance indicators?
- CTR (click through rate)
- CR (conversion rate)
- CPC (cost per click)
- CPA (cost of a target action)
- CPL (cost per lead)
- Assessment of financial performance indicators of the Republic of Kazakhstan
- ROI (return on investment)
- CAC (Customer Acquisition Cost)
- LTV (total profit for the time of cooperation with the client)
- Example: how to calculate the effectiveness of contextual advertising?
Methods for analyzing the effectiveness of contextual advertising depend on several factors, the most significant of which include the scope of activity, the goals set, the lead conversion methodology and the tools used.
Why evaluate the effectiveness of contextual advertising?
Before analyzing the effectiveness of a campaign in any way, it is necessary to understand the purpose of such an evaluation.
There are several arguments in favor of evaluating the effectiveness of contextual advertising:
- Investments in contextual advertising are, first of all, the advertiser’s money, which he invests in displaying ads and related support. This money can be increased by getting a new channel to attract traffic or by upgrading the old one, or you can lose it by relying on the help of non-professionals. Only an analysis of advertising profitability and return on investment will help to understand whether there is a result from investments, and if not, then what is the reason;
- In online marketing, you can analyze the behavior of the target audience, get feedback from it and determine how much the resource is liked by visitors, identify their interests. Even in offline business, such information can be extremely useful;
- Being in an information vacuum, without evaluating the return on investment in marketing, it is impossible to make adjustments to the strategy. Sometimes this approach backfires. Therefore, for the AC to be truly successful, monitoring of key indicators is needed;
- The parameters of profitable contextual advertising need to be adjusted repeatedly. Making it optimal the first time is quite difficult. You should build hypotheses, experiment and change settings based on the results of the study.
Attention! Evaluating the results of contextual advertising helps to adjust the quality of service due to the constant analysis of user preferences.
What to consider when analyzing the effectiveness of an advertising campaign?
When analyzing the effectiveness of contextual advertising, it is necessary to take into account its specifics. When starting the RK, you should be guided by the following rules:
- The SMART goal setting model should be at the heart of any campaign goal planning:
- Specific – they must be clearly defined;
- Measurable— they can be measured;
- Attainable – they can be reached;
- Relevant – they must be relevant;
- Time-related—must be reached within a certain amount of time.
The performance of such tasks as “increase sales” or “increase conversion” cannot be assessed due to the vagueness of the wording. SMART goals are: “Increase the number of visits to product page X by 15% per month” or “Increase conversion rate by 12% per quarter for product group Y.”
- You should track the dynamics of key metrics. This requires fixing the values of the main evaluated criteria before the start of the campaign, and then making a cut according to the selected criteria with a given frequency;
- Design milestones throughout the campaign period. This is especially true for long-term activities. After receiving the intermediate results, it becomes possible to make adjustments, therefore, it is possible to foresee risks and avoid surprises at the end of the advertising campaign;
- Seasonality should be taken into account correctly. To compare factors in seasonal business, it is better to focus on periods with similar seasonality in past years as a base. Comparing the results of the high season with the low is wrong;
- Compare metrics correctly for equal time intervals. The presence of weekends and holidays in the analyzed period can greatly distort the results. Therefore, it is best to compare week to week, year to year.
Key performance indicators of contextual advertising
There are two groups of contextual advertising performance indicators: marketing and financial. The values of the parameters of the first group can be tracked in the Google Ads service account or in the Analytics account. To analyze the financial component, information is used that is most often found in a corporate CRM system or an accounting program.
Important! Only a comprehensive comparison of various metrics allows you to get a true picture of the effectiveness of an advertising campaign.
If we take into account only marketing indicators, such as conversion growth, this will not allow us to conclude that, from a financial point of view, the effect of advertising activity is also at its best. Financial criteria, such as ROI and LTV, are designed to solve this problem.
Such an assessment will allow not only setting up ads, but also adjusting business processes in accordance with audience requests at minimal cost.
How to evaluate marketing performance indicators?
To analyze the marketing component of the effectiveness of advertising investments, it is advisable to work with five main metrics. Two of them are coefficients and are expressed as a percentage: CTR and CR. The remaining criteria are valuations: CPC, CPA and CPL.
CTR (click through rate)
To understand what proportion of ad impressions makes a user click on a link, click through rate is used. A CTR of 7% means that 7 out of 100 ad impressions end up with a link to the site.
Google Ads is not rewarded for impressions, but for each user click. Therefore, ads with a high CTR are most profitable for her. Therefore, for such campaigns, the system offers a reduction in the cost of a click.
Help! There is no optimal CTR value. You need to monitor its dynamics, and if the CTR grows, then the strategy is built correctly.
When answering the question of what should be the CTR, the theme of the resource, the industry of business, and many other factors play a role. Somewhere you can applaud the result of 2.5%, and in some areas even 20% is considered insufficient. We can definitely say that the more clicks the ad receives, the better.
CR (conversion rate)
One of the defining performance indicators is the conversion rate. CR (Conversion Rate) determines how many users who went to the site completed an application or performed another target action.
Hint! It is convenient to analyze conversion and other metrics using Google Analytics tools.
CR illustrates how well the ad is written and set up. If its content meets the needs of the user, and the landing page answers most of its questions, then the conversion rate will be quite high. If, for example, the price tag or the quality of the offered product is not relevant for the majority, then the CR will be low.
CPC (cost per click)
Average CPC is abbreviated as CPC. This is a dynamic parameter and at different times it may differ several times depending on the competition.
Important! You cannot use CPC as a criterion for evaluating the quality of an ad.
When the average cost per click decreases, the effectiveness of the advertising campaign most often suffers. The flow of visitors to the advertiser’s site is decreasing.
CPA (cost of a target action)
To understand how much it costs to fill out a form, questionnaire, registration or application from a user, the CPA cost indicator is used. It shows how much a predetermined event cost, which should occur after attracting a potential buyer to the site. So, for example, with an advertising budget of $100, the Internet portal was visited by 25 new users and only 10 of them left an application. CPA in this case will be equal to $10.
CPL (cost per lead)
The cost of one user contact or CPL is calculated as the ratio of the advertising budget to the number of leads received. For example, during a campaign with a total ad spend of $500, 100 people filled out the feedback form, with a total of 250 new visitors. CPL in this case will be $5.
Assessment of financial performance indicators of the Republic of Kazakhstan
The economic effect of conducting the RC can be assessed by quantitative and cost metrics understandable to everyone. For this purpose, they often analyze the number of new customers or completed transactions, the dynamics of changes in the value of the average check, profit, sales volumes.
Attention! When analyzing financial indicators, you will need access to sales data.
But you should consider more complex and rather important factors from a financial point of view: return on investment, cost of attracting a new buyer, total income during cooperation with the client.
ROI (return on investment)
For executives or business owners, ROI, or return on advertising investment, is most important. The value of this parameter allows you to evaluate the degree of profitability of contextual advertising and is calculated as the ratio of income reduced by the amount of investments to the total amount of investments.
For example, if a company invested $100 in marketing and received $175 in revenue, then the ROI is calculated as ($175-$100)/$100=75%.
The value of the return on investment indicator depends not only on the professionalism of PPC specialists, but also on quite objective factors: business areas and market conditions. Therefore, it is necessary to evaluate not only the nominal value of the indicator, but also the dynamics of its change.
CAC (Customer Acquisition Cost)
The cost of attracting a buyer CAC shows how much money you have to spend to attract one buyer. The calculation formula is simple. The amount of money invested in advertising must be divided by the number of new customers who came through it. So, if there were 50 hits with a budget of $500, then the CAC is $10.
Important! The CAC indicator should be evaluated in dynamics. Moreover, a decrease in its value indicates an increase in performance.
LTV (total profit for the time of cooperation with the client)
Often, the cost of attraction at first glance seems to be too high, and when making a single transaction, it can cause a negative amount of profit on it. But if we evaluate the total profitability for the period of cooperation with the buyer LTV (LifeTime Value), then the situation may not be so negative.
A simple formula for calculating LTV looks like this: the amount of total profit over a long period of time must be divided by the number of people who bought a product or ordered a service.
LTV can be determined in many ways. The simplest is to divide the company’s total profit by the number of customers.
More accurate figures are obtained if the average period of contact between the customer and the company, the number of transactions made during this period, and the average amount of one transaction are known.
Example: how to calculate the effectiveness of contextual advertising?
To calculate the effectiveness of contextual advertising, it is necessary to determine the conversion rate and the average profit per transaction. If these parameters are known, then you can calculate the maximum cost per click using the following algorithm. For example, let’s set the conversion rate to 4%, and the average margin per sale to $50.
- In order to make one sale, you need to attract 25 visitors to the site (= 1/0.04);
- With an average profit per sale of $50, you can spend no more than $50 per customer acquisition. The excess of advertising costs over the size of the average profit from one transaction invariably leads to unprofitability of this transaction. You can spend no more than $50/25=$2 on one visit;
- After doing a reverse check, we are convinced that attracting 25 visitors with a cost of a click of $2 is equivalent to one who made an order at a price of $2*25=$50;
- The calculations are correct if, when attracting a new client, the main thing is not to lose money. If the rate of return from each transaction is determined, then the margin from the sale must be adjusted taking into account this information;
- After determining the maximum cost per click, you should evaluate the actual possibility of getting traffic to the site from Google Ads at this cost.