How to check the effectiveness of advertising (which KPI to watch and how to calculate)

how-to-check-the-effectiveness-of-advertising-(which-kpi-to-watch-and-how-to-calculate)

The absolute advantage of online advertising over offline marketing is the possibility of almost absolute control and analysis of each channel to attract customers. Today we have just an excessive amount of models and tools to evaluate our effectiveness. What metrics need to be monitored to understand what the results of advertising brings?

In order to understand this, we will look at the path that the user follows from the moment of the first meeting with advertising and before becoming a loyal customer who makes a profit on a regular basis.

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  1. The first link in the chain of interactions of the campaign and the client is the user’s contact with the advertising message. Already at this stage, we get many different indicators: clicks, impressions, coverage, expenses, etc.

    But what does this mean for business?

    Just how users interact with advertising.

    What indicators to pay attention to:

    • CPC (build per click) – the price that the advertiser pays for each transition to the site.
    • CTR (click-via charge) – the ratio of clicks to impressions. It reflects how accurately an ad falls into the needs of the target audience, whether it looks attractive and whether its placement is well chosen . The value of CTR can vary greatly in different niches and in different audiences, but it clearly demonstrates which ads work well and which ones do not.
    • eCPM is the effective price per 1000 impressions. Especially important for media advertising and advertising in social networks. The point is that regardless of the payment model: for clicks or for impressions, the “gold standard” for almost all advertising systems is the price for impressions, for which the site will be ready to give your ad an advertising space. The judgment that paying for clicks by default is more profitable, since it involves paying only for the committed action, is erroneous. The calculation is very simple: eCPM = costs / impressions * 1000. If the eCPM ads are higher than the CPM offered by the advertising system, you need to change the payment model to pay for the impressions.

    These indicators are easy to calculate and convenient to compare. But this still means little to the company’s profits. Delve further.

  2. Users have moved to your site , are exploring products and services, place orders. By what KPI can we evaluate advertising at this stage?
    • Behavioral factors: viewing time, viewing depth, percentage of repeated visits, refusals, etc. They characterize the general picture of user interaction with the site: whether the site meets their expectations, whether quality traffic is attracted.
    • Conversions are targeted actions that users take. These are completed feedback forms, links to certain pages of the site, community subscriptions, completed orders or other valuable actions. Conversions can be performed not on the site, but, for example, by means of a telephone call. In this case, in order not to lose sight of the number of attracted leads from various channels, it is worthwhile to connect call tracking by traffic sources .
    • Conversion Rate (CR) is the ratio of conversions to the number of site visitors. The most important indicator reflecting the effectiveness of the site as a sales tool. Knowing the exact value and constantly working on improvement is the sacred duty of every webmaster. Even a perfectly customized advertising campaign can work in the negative, if the site does not convert visitors .
    • CPA (build per action) – the cost of conversion. It is calculated as the ratio of advertising expenses to the number of targeted actions performed. Depending on the goals of the advertising campaign, the CPA indicator may be presented in other forms, for example, CPO (build per instruct) – the cost of the confirmed order, CPL (build per lead) – the cost of the lead.

    Taking into account these KPIs makes it possible to make already more weighty conclusions about the effectiveness of advertising, because they clearly show how advertising contributes to the achievement of goals that are truly meaningful for business. Sometimes they will already be enough to know whether the advertisement fulfills the tasks assigned to it. However, often the problem arises in that the same goals are not always equal to each other in the meaning of the total profit.

  3. The effectiveness of advertising, expressed in profit. Cross-cutting analytics. We can clearly calculate the price of attracting a buyer from advertising, but when one buyer places an order for 2,000 rubles, and another for 50,000 rubles at a time, this is confusing. The link between website conversions and real sales is the integration of web analytics, CRM systems and advertising channels. There are several special services that simplify the collection and analysis of data on traffic sources and the results of their work, for example, Roistat , Google Universal Analytics and others. Having adjusted the end-to-end analytics, you will get a transparent, expressed in numerical values ​​pleasing with their uniqueness, between each advertising channel and each sale. This allows you to calculate the following performance indicators:
    • ROI (return on investment) = (advertising revenue – advertising costs) / advertising expenses * 100%. Reflects how paid into advertising.
    • DRR (share of advertising costs) = advertising costs / advertising revenue * 100%. Reflects what percentage of income is spent on advertising.

    These metrics are similar to each other and are real indicators for which the business operates. Sometimes there are special cases when collecting statistics is difficult, or the goal of an advertising campaign is, for example, increasing brand loyalty. In such cases, it may be difficult to calculate the exact advertising profit. However, now you know that there are other KPIs, the understanding of which will allow you to always keep your finger on the pulse and manage your money wisely.

P. S. Looking to the future. Predictive analytics

But is it right to evaluate and optimize an advertising campaign, relying only on the short-term profit received from the client after switching to advertising? Maybe we should dig even deeper?

LTV (lifetime build) – the total profit received from the client for all the time of cooperation. There are various complex methods for calculating and forecasting LTV, with functions, integrals and financial mathematics. But to get an approximate value of this indicator for your company, you can use the basic formula:

LTV = average profit from sale * average number of sales per month * average customer retention time in months

Try to estimate how much profit a customer brings in a year or two. How many interactions with it are required to get this profit. What is the share of profits from independent repeat purchases, and what – through retargeting. What are the earliest signs that a customer will make a big profit in the end? Is there, for example, a relationship between the size of the first purchase and the size of the next one? Perhaps the relationship between the data, which today seem scattered or even meaningless, tomorrow will be in one picture.

Optimizing advertising based on the predicted LTV is a real hard task. However, modern technologies for big data and machine learning may well make it real. And companies that are starting to master this approach will get not only a plus to their expertise in marketing, but also a unique analytics system, which is almost impossible to copy.

Was this article helpful to you? Calculation and evaluation of which KPI caused you the greatest difficulties?

If you want us to look at your specific case and give a professional assessment and recommendations on how to improve advertising rates, we suggest using the “ Free Audit Campaign Audit ” service.

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