Choosing the right digital advertising metrics to track and measure is crucial to the success of your campaign. If you aren’t tracking advertising efforts correctly through marketing automation software and tools, you’ll never know what’s working, and you won’t be able to communicate success to your business partners.
The first step to determining your ad’s success is setting goals with benchmarks that matter.
Determining your core ROI goals means you’ll be able to measure data that tells the story of how your target audience interacted with your ads.
Here are a few of the key metrics to track that will help you measure success and determine advertising ROI with your Ad Analysis:
CPA – Cost Per Acquisition
How much does it cost you to acquire a new lead in any given channel?
Knowing the cost to acquire a client in your business is the basis of your marketing budget, so it’s crucial data to add to your ROI analysis. Combined with the other data, this will determine whether your business will make a profit.
Ideally, you’ll want to get a sense of which mix of advertising channels (Search, Facebook, Display) works best for your business in the industries you focus on. Then you’ll be able to better optimize your ad budget going forward.
Lead submissions are important to ROI because your business can track lead submissions throughout the buyers’ journey (hopefully through your CRM). You will then be able to see which channels are driving the most leads and which ones are driving the most quality leads (and therefore ROI). As more leads are generated and your business better understands customer lifetime value, the average sales cycle, etc., then you’ll be able to better allocate budget based on your ROI.
CPA is a simple but valuable formula. Knowing how much it costs to acquire a new lead is key to understanding your ad ROI as a metric.
How to Analyze the CPA of Your Ad Campaign: This depends a lot on the industry, location, ad type, season, etc. Determining this number for your clients may take some time as your campaigns accumulate data. Ultimately, the cost of acquiring a customer should be less than your average LTV, preferably 1/3rd of it. Your cost is the product of the cost per click ($X), the conversion rate from click to a free trial (Y%), and the conversion rate from free trial to the paid customer (Z%). So, to analyze your ad performance, you need to be looking at those three digital advertising metrics – X, Y, and Z. These are the universal indicators across any ad platform.
LTV – Lifetime Value
Do you know the lifetime value of your business? If you know your LTV, you’ll be able to compare it directly to the cost of acquiring a new customer through your digital ad campaign. This is the sum of all transactions or the total value a customer will spend over their lifetime. It is important to know so you can determine how much you can afford to spend to acquire them, and also retain them over time. If this number is high that can help justify increasing your marketing investments, knowing you’ll get returns over time.
Here’s the formula you can use to help get the answers you need. Our digital ads team always asks for LTV because it’s so essential for providing advertising ROI calculations.
If you’re just starting out, you’re not going to know this data for a while. However, it’s something that you should start tracking immediately! Start by using your business’s customer LTV. This is your new benchmark and attracting customers which a higher LTV from your ads is the goal. As your campaign progresses, make sure you’re communicating specific campaign LTV based on the quality of the leads your digital ads are bringing in.
PRO TIP: If you’re having trouble tracking attribution, looking at “session duration” in Google Analytics can be a good proxy for lead quality. By breaking session duration down by source and medium, you can see how your marketing channels compare. If, for example, you see that traffic from Facebook spends an average of three minutes on your site, while traffic from Yelp only spends half a minute, you can infer that your Facebook targeting is brining in higher quality leads that are more interested in your product or services. At this point, traditional metrics like click-through rate and reach are all moot if the traffic isn’t sticking around.
CR – Campaign Revenue
Now that we understand how to calculate and analyze the lifetime value of your customers, we’ll be able to track the revenue generated by your digital advertising campaign. As you can see below, you just need to multiply your campaign’s conversions by LTV and closing ration (50% would be .5). Why include closing ratio? Obviously, every new lead you generate isn’t going to become a customer, so you’ll need to factor in how often your business is able is close new leads to estimate campaign revenue correctly.
How to Analyze the Revenue of Your Ad Campaign: As you perform your ROI analysis, it’s basically impossible to tell you what optimal revenue is per campaign. It totally depends on your goals, the campaign type, and the budget. A decent rule of thumb is a 5 to 1 revenue to cost ratio.
PRO TIP:A 5:1 ratio is middle of the bell curve….A 2:1 revenue to marketing cost ratio wouldn’t be profitable for many businesses, as the cost to produce or acquire the item being sold (also known as cost-of-goods-sold, or COGS) is about 50% of the sale price. For these businesses, if you spend $100 in marketing to generate $200 in sales, and it costs $100 to make the product being sold, you are breaking even. If all you accomplish with your marketing is break even, you might as well not do it.”
ROAS – Return on Advertising Spend
ROAS is an illuminating digital advertising metric for ad campaigns, and a lot of marketers use it interchangeably with ROI itself. However, there are significant differences between the two. What is the difference between ROI and ROAS?
PRO TIP: ROI measures the profit generated by ads relative to the cost of those ads. It’s a business-centric metric that is most effective at measuring how ads contribute to an organization’s bottom line. In contrast, ROAS measures gross revenue generated for every dollar spent on advertising. It is an advertiser-centric metric that gauges the effectiveness of online advertising campaigns.
So advertising ROAS is much more focused on the results from specific campaigns, while ROI incorporates the bigger picture relative to the business. This means that it’s much easier for a business’s like yours to be tracking and analyzing advertising efforts with ROAS. You know the cost and you can calculate the revenue.
How to Analyze the ROAS of Your Ad Campaign: The answer here is similar to revenue…it depends on a lot of campaign and industry factors. Most of the big digital ad brands would be VERY touchy if you asked them for their average ROAS per industry! However, at least a 5:1 ratio is a good place to start.
Digital Advertising Metrics to Avoid
While it’s tempting to pump up other results you’ve accumulated during your ad campaign, it’s important to resist this desire. One thing we would NOT do is try to push vanity metrics as a way to mask poor performance. Metrics like clicks, shares, and engagements are fun to look at, but unless they are driving primary conversions (i.e. leads) they are not valuable to your sales funnel.
This isn’t to say you should ignore this data, but you shouldn’t base campaign goals around them. Think of things like impressions, shares, clicks, and engagements as clues that help you analyze the health of your campaigns. They’re valuable to track and understand, but they shouldn’t take the focus away from the core digital advertising metrics that can make or break your campaigns.
How to Translate ROI Analysis Results
Ensuring that your team members understand what’s happening in your campaigns is super important. If things are going well, you need to be able to communicate what’s working, and why the campaign is SO AWESOME! If the campaign is struggling, you need to be able to analyze it to know why and explain your plan to turn things around.
Oftentimes, businesses aren’t advertising experts, which is why they hired you in the first place. A very important part of the reporting process for your audience is to communicate in real-life business results that your digital advertising is driving. Just keep in mind that they are not going to understand all of these ROI metrics. So what does that mean exactly?
Check your digital advertising jargon at the door! Remember that many don’t speak the language of digital marketers and might not understand LTV, CPC, ROAS, and all the other acronyms that marketers use to communicate results. Analyzing your ads and translating your results into relevant digital advertising data is a critical way to help your team members understand what you’re doing for them. Numbers like in-store visits and phone calls help prove the value of digital advertising.
Setting Ad Campaign Goals
Businesses have all sorts of different goals for ad campaigns. For example, one business may want to increase phone calls, while another might want to improve their brand’s reputation.
Everything you track should be based on the specific campaign goals of that business. Anything that doesn’t tie into these goals is only worth reporting if it helps tell the overall story of how the campaign is performing.
Questions to ask while setting up the campaign goals:
- What is the key objective or purpose of this campaign? Why are you advertising?
- What action do you want your prospects to take? Call? Request more info? Walk-in? Buy something?
- How much new business are you hoping to get from this campaign?
How to Improve ROI
Improving digital ad ROI is obviously the goal of every campaign ever created. The answer can be different for each business, industry, ad type, and beyond. However, there are a few fundamentals that can be applied across the board.
Understand your target audience: Understanding the psychology of your target audience is essential if you want to intrigue them and get them to click on your offer. Make sure you do your research upfront—start by surveying your business to narrow down your target audience and understand your demographics for digital advertising. This will cut down on wasted spend by eliminating people who won’t care about your ad or offer.
Use AB testing to hone your message: AB testing or split-testing is basically a one-on-one throwdown between two ads at a time. The goal is a Darwinian-Esque evolution into the perfect ad copy, landing page, and offer for your campaign.
Accurate A/B tests can make a huge difference to your bottom line. By using controlled tests and gathering empirical data, you can figure out exactly which marketing strategies work best for your company and your product. When you figure that one variation might work two, three, or even four times better than another, the idea that you would conduct promotions without testing starts to seem a bit ludicrous.
Regular Digital Advertising ROI Analysis: Tracking advertising efforts is an essential way to improve your ROI. The more data you get, the more trends you’ll see in your metrics, which will help you improve your ad campaigns. Now that you understand what to track, you shouldn’t be part of the 76% of marketers who are still struggling to track the ROI of their campaigns. Keep your finger on the pulse of your ad campaigns and take note of actions that improve or hurt performance.