When it comes to running ads online, it’s important to understand how they’re performing from top to bottom. The only way to understand their performance is to know how to measure it. In this article, we’re going to discuss 6 metrics that help you measure your PPC ad campaign performance. The metrics we’re going to break down are:
- CPM – Cost per Thousand
- CPR – Cost per Result
- CPC – Cost per Click
- CTR – Click-Through Rate
- CVR – Conversion Rate
- CPA / CPL – Cost per Action or Cost per Lead
By the end of this article, you will be able to measure your campaign’s performance and understand how to optimize your campaigns and cull ads that are underperforming.
#1) CPM – Cost per Thousand
Known as CPM (cost per mille), CPM is a metric that allows you to understand how expensive an audience is to advertise to – or serve your ads to. It’s a widely used advertising metric used in internet marketing and conventional ad media such as print and TV ads.
Since ads are usually served to larger groups of people, rather than a few individuals, it is used to understand the cost of advertising to a sample of 1000 people.
The term actually refers to the number of impressions served. The same person seeing the ad twice would account for 2 impressions.
A CPM of $2.00 would in turn mean that it costs $0.002 per person ($2.00/1,000). This helps to understand the demand for advertising to a particular audience.
How does CPM apply to me?
Assuming you will generate the exact same number and quality of leads from an audience with a higher CPM, than a lower CPM…
You would want to advertise to audiences with a lower CPM of course. That way you can serve more impressions of your ad, to the same sized audience at a lower cost.
This isn’t always the case. In markets and industries, where CPM is independent from lead quality and quantity, ROI, etc. you would be better off advertising to the lower CPM pool. However, CPM obeys the law of economics. As mentioned earlier, CPM helps to determine the demand of advertising to particular demographics and locales.
For instance, advertising to people in metropolitan areas will likely command a higher CPM than people in rural areas. This could be due to a number of reasons, but there are more consumers in densely populated areas and more businesses looking to capitalize on these nearby consumers.
The heightened demand for the limited advertising opportunities in these areas will effectively drive up the prices.
Does CPM apply to PPC and Online Ads?
CPM applies to PPC ads all the same.
In fact, it can help to understand the type of audience you have build online and how difficult (or costly) it may be to try to reach a certain set of people.
Here’s an image taken from one of our Facebook Ads accounts. We’re running a campaign to a costly set of audiences – from a CPM perspective. Our three audiences have CPMs ranging from $8.24 – $11.80.
Understand CPM’s Priority and Significance
It just so happens that our audience with the lowest CPM is also yielding the best results. However, in our case, the overall objective is to get the most people to watch our video ad as possible.
As a result, our first audience with the cheapest CPM is the best. If we had two audiences yielding the same results, then we could choose to cut the audience with the highest CPM – all else being equal.
#2) CPR – Cost per Result
Cost per Result is exactly as it sounds. It’s one of the more flexible metrics, yet one of the most critical.
It requires you as the advertiser (or the business running the ads) to define what a result is. You could define it as one of the other 5 metrics, but there isn’t much point, since they already have their own acronyms.
Instead, it’s better to only use CPR when you need to (no pun intended) and when the result is a KPI (Key Performance Indicator) that you can extrapolate from the data, but doesn’t have its own widely accepted term.
How to Define the ‘Result’ and How to Use it?
Here’s another example from the Facebook Ads account. Using this example, we wanted to run our ad across several different audiences and determine which audience is producing the best bang for our buck.
That way, before we invest a lot of ad spend into our campaign, we want to invest a small amount of money and some time into determining which will produce the most results for us at scale.
For the purposes of this campaign, we’re defining the result as anyone who watches at least 75% of our videos. So we can calculate the CPR manually by dividing Amount Spent by # of 75% watches (# of results) with the following data.
|Audience||Amount Spent||Video Watches at 75%||CPR|
Therefore Audience #1 is the winner. This allows us to determine which Audience is producing the best results before we scale our campaigns.
We can now run our campaign at scale with Audience #1 and use it as a benchmark as we find new audiences to invest a small amount in and test which produces the most results at the best CPR.
#3) Cost per Click
Cost per Click is important to understand how much it’s costing you to buy traffic to your website or landing page.
When working with a fixed budget and again, all else being equal, we would want to drive traffic to our site with a lower CPC. That would allow us to drive more traffic to our site while keeping our total budget constant.
Here’s an example of another Facebook Ads account we’re using.
We can see that our second ad set (Row #2) was averaging a CPC of $2.68 (also the CPR for this campaign).
When investigating opportunities to lower the CPC, we can look at the demographics more closely and determine if there are places where we are paying too much for CPC.
We can see that for Women between 55-64 years old, the CPC was $1.74 vs $8.41 for Men between 55 and 64.
In the case that Men and Women are your target audience and saw no difference in cost per lead, number or quality of leads between men and women, you could simply exclude Men 55-64 from your audience and bring your overall CPC down towards that $1.74.
When is CPC not a good Performance Indicator
In the above example, we could easily be targeting men and women. However, perhaps those same metrics $1.74 vs $8.41 for Women and Men between the ages of 55-64 respectively was for a business or website aimed towards Men of that age (or equally important, the target consumer base was that demographic).
Then you would want to pay the higher CPC cost.
#4) CTR – Click-Through Rate
The Click-Through Rate is a simple metric. It is the number of clicks an ad receives divided by the number of impressions.
CTR = (# Clicks / # Impressions)
In the above screenshot, the first row shows the following data:
- Link Clicks (All) = 84
- Impression = 56,224
- CTR = 0.15%
We can verify this manually by applying the above formula and we find that Facebook is actually round up from a more precise CTR of 0.149%.
When to Pay Attention to CTR
When the purpose of an ad campaign is to drive traffic to your site or a specific landing page from you ad, CTR is highly relevant.
It allows you to measure how relevant and compelling your ad is. The higher the CTR, the less impressions you have to serve to achieve your desired amount of traffic.
#5) CVR – Conversion Rate
Conversion Rate is the amount of traffic that completed a goal or objective whether on your website, lead form or landing page.
Conversions are usually the actions you want users to take on your website. In our case, we work with law firms. Law firms typically want leads in the form of phone calls or form submissions.
How to Define a Conversion?
In the above screenshot from one of our Google Analytics accounts, we can see that 22.95% of traffic completed one goal conversion or another.
However, it’s important to understand what you are seeing. Many of these conversions took place by not filling out a form or making a phone call directly, but by people looking up the phone number or contact details for our client’s law firm.
We can see that many of these resulted in people looking at the contact details 582 times. This doesn’t directly impact the Goal Value. It’s what we call a ‘soft conversion’. However, all the same, we’re able to understand how many people expressed interested in calling or emailing the firm from this data, so we count it as a conversion.
It’s important to define your conversions based on the nature of your business. Since our clients’ firms are interested in having people reach out and contact them after finding their site, ‘Viewing Contact Details’ is considered a conversion, since it’s an action they desire their prospects and leads to take.
Types of Objectives & Conversions
Here are some common Objectives to consider measuring in your Conversion Rate for Law Firms and other local, service-based businesses:
- Phone Calls
- Contact Form Submissions
- Directions to Office Look-up
- Looking up Contact Details / Info
To illustrate the point about having a range of conversions, let’s look at common list of Conversions and Goals that an E-Commerce / Retail site may have:
- View Product Page
- Add to Cart
- Add Shipping Info
- Place/Confirm Order
Many may think that ‘Add to Cart’ and ‘Place/Confirm Order’ would be the only conversion goals, however its important to understand that Conversions exists at almost every level of the marketing and sales funnel.
Viewing Product Pages will occur most frequently while Confirming Orders will be the rarest type of conversion – with Add to Cart and Add Shipping in the middle. These allow business owners, marketers and analyst to understand what parts of the funnel and purchase experience are working and which are not.
Conversions and conversion rates can go much deeper. This topic really deserves its own collection of articles and discussions. However, hopefully this gives you a decent overview of Conversion Rates and how you can apply them to your own business.
#6) – CPA & CPL – Cost per Action & Cost per Lead
At this point, you probably see that the last metric is actually 2 metrics. Here, we will discuss CPA and CPL.
CPA actually can get a little convoluted. It can refer to Cost per Action or Cost per Acquisition. Here, we are going to discuss the former and leave acquisition for the much more fitting metric of CPL – Cost per Lead.
6.1) CPA – Cost per Action
Cost per Action is the total amount of marketing and sales spend required to have a prospect, site visitor, user or lead perform a certain action. The action, referenced in the well-known marketing term of “Call to Action” (CTA), is the action you are driving users to take – on your site in the instances this article deals with.
Actions are likely to be some of the objectives you measure in the conversions we discussed above in section #5 on Conversion Rates.
For instance, we can take the case of an E-Commerce store to clearly understand the economics of CPAs. Some of the actions that a user will take through the purchase cycle, as listed above are again:
- View Product Page
- Add to Cart
- Add Shipping Info
- Place/Confirm Order
So for instance, it’s important to measure each of these in terms of CPA to understand how profitable (if at all) a marketing and sales funnel is for a business.
If the CPA for “Add to Cart” is $2.50 and the average product’s list price is $50.00 dollars, then that may work. Depending on the margins of the products, a retailer may be satisfied with that CPA.
However, if the CPA for Place/Confirm Order was $25.00 for that $50.00 product, then that eats into their margins significantly. So while the CPA for Add to Cart is fine and the CPA for Confirming the Order is out of proportion, then know where they need to focus their efforts to make their sales funnel profitable.
CPA is a metric that allows you to understand how efficiently your funnel is operating.
6.2) CPL – Cost per Lead
Similar to CPA, CPL is calculated by dividing the total marketing spend by the number of leads driven by the marketing and advertising activities.
If you business spends $10,000 on marketing and that drove 50 new leads, then your CPL would be $200.
6.2.1) CPQL – Cost per Qualified Lead
It’s common, especially for service-based businesses like law firms to generate leads that they simply cannot serve. This can be for a number of reasons.
Even with well-targeted marketing, you can have a number of leads that you simply cannot serve. To understand exactly what a Qualified lead would be, let’s take the example of a Car Accident Lawyer.
In many states and provinces, there is a cut-off for brining a claim against the at-fault driver or an insurance company. Let’s call it 2 years for this scenario.
For the 50 leads accumulated over the $10,000 in marketing spend, 10 of them were beyond the limit or had another issue that prevented the car accident lawyer from even booking an initial consultation with the lead.
In this case, only 40 of the 50 leads would be considered as qualified. Then we would simply take the $10,000 / 40 Qualified Leads to end up with a CPQL of $250.
There you have it. 6 (actually 7… no wait 8!) marketing metrics that you should be measuring in your PPC ad campaigns.
Remember that not all metrics are created equal! It will heavily depend on your overall goal. In the last part we discuss Cost per Lead in CPL and CPQL.
If you’re a local, service-based business (such as a lawyer / law firm) and understand that you can endure a CPQL of $500 and run a profitable business, then you can use other metrics like CPC and CVR to sweeten the returns or increase your lead quality.