Advertisements are great, especially now that we have the internet.
We can advertise on Facebook, Google, YouTube, and so many other platforms.
But before you start advertising, you need to know that there are digital marketing KPIs that you need to measure.
These metrics will help you determine if your marketing campaign is working or not.
Today, you will learn the most eight important advertising metrics for online businesses.
Use this as a guide to see how you can improve your marketing campaigns.
1. Traffic Growth Rate
Website traffic refers to the users that visit your website. This is used to measure your site’s performance in terms of attracting an audience.
Traffic is the beginning of any website’s success if you advertise online.
Here is how to calculate traffic growth:
First, collect the data that you will need—specifically, your website traffic from the past and current month.
You can check your site’s statistical data by using Google Analytics.
Once you have both subtract the number of traffic of the past month from the current.
The formula will look like this: Current Traffic – Past Traffic = n; Note that we will use “n” to represent the difference between the two.
Next, divide n by the past month’s traffic, and then multiply it to 100 to get the percentage.
Refer to the following solution: (n/Past Traffic) x 100 = Traffic Growth Rate
Having even a 1% growth rate is a good thing.
However, if you landed on the negative, you have to think of new ways to generate traffic.
Whenever you spend money on advertising, you have to keep track of your traffic.
2. Bounce Rate
The next most important of all advertising KPIs is the bounce rate.
Bounce rate has something to do with people not exploring your other pages.
For example, if advertised and customer clicked and landed on your home page, and then he left, that is a bounce.
The same rule applies if you advertised, and your landing page is a product page.
For as long as the site visitor did not visit a new page, it is considered a bounce.
This should not be confused, however, with an exit rate which is measured by determining the number of people who leave a specific page on your website.
To get the bounce rate, you need to get:
- Total number of one-page visits (A)
- Total number of entries to a website (B)
Divide Data A or the number of one-page visits by Data B, the total number of entries, and then multiply it to 100.
Your formula will be: (Total One-Page Visits/Total Entries) x 100 = Bounce Rate
To be clearer, here is an example.
Suppose that you have 2,500 visits this month; however, data shows that a total of 750 users only viewed one page and then proceeded to leave.
Using the formula given above, this is our equation: (750/2,500) x 100. The answer will be 30%, thus your bounce rate.
The general rule for this metric is as follows: 26-40% is considered excellent; 41-70% is along the lines of average, and anything higher than 70% means there is something wrong in your website.
3. Conversion Rate
Conversions pertain to actions and/or activities that are completed by the visitors of your website.
This can be as simple as registering for email alerts, or as valuable as making a purchase.
A conversion is an action that you wanted your customer to take.
If you advertise, there surely is an action that you want your consumer make.
Here are some examples of conversion:
- Email opt-in
- Notification opt-in
- Book or brochure download
Below are the instructions on how to get your conversion rate.
First, gather the following data:
- total number of conversions
- total number of website visitors
Note that they should be in the same time frame either daily, weekly, monthly, or even yearly, whatever you prefer.
Divide the total number of conversions by the total number of visitors, and then multiply it to 100.
Here is brief of the formula: (Total Conversions/Total Visitors) x 100 = Conversion Rate
For example, if out of 4,500 visitors this month, 600 of them either signed up for your newsletter or purchased a product from your website.
To get the exact conversion rate, calculate it by: (600/4,500) x 100. You will get 13%.
Having a high conversion rate is definitely good for your business.
This means that your website is engaging enough for your traffic, or that your product is worth buying.
You can use some psychological triggers to make them buy, but sometimes they do not convert.
A high conversion rate also means that you are getting a return non your advertising costs.
4. Cost-per-Conversion (CPC)
More often than not, knowing your conversion rate is not enough.
You can’t just continuously execute marketing strategies for the sake of conversions without knowing how much you pay for each.
You won’t be able to monitor your finances this way.
This is where cost-per-conversion comes in.
This metric will help you determine the cost of each “purchase” generated by your campaigns, like advertisements.
Refer to the following details on how to calculate CPC.
The data that you will need are:
- the total amount of money that you paid for campaigns
- the number of conversions generated.
Find the quotient between the two.
For your reference: Total Campaign Cost/Total conversion = CPC
Note that this isn’t in percentage form. Its unit of measurement depends on the currency of the amount.
As an illustration, let’s use this scenario: You are paying $15 per month for an email marketing service.
This has efficiently brought in 5 sales.
To get the CPC, we will divide 15 by 5. Its answer is 3.
Therefore, every customer for that specific month had cost you $3.
To know if your current CPC is good, compare it to your profits.
A high CPC does not necessarily mean that it’s bad for your business if you have high profits from each.
Let us say that you spent $15 on the advertising fee and you got five sales or conversions.
The CPC is $3, but these five people who bought (that you paid $15 in total), made a purchase that totalled $300.
This means that out of the revenue you had, you only spent $15 for the advertisement and you still made a decent profit from three clicks.
5. Customer Lifetime Value
Customer lifetime value also called lifetime value, is used by website owners, mostly entrepreneurs, to know the estimated amount they can possibly earn from their relationship with a customer.
They measure the profit that a customer will bring to them in a specific period of time.
In addition, you can perceive this metric as a measurement of how valuable a customer is to the company.
How do we get the Lifetime Value?
First off, we need several data sets, such as:
- the average sales from transactions
- number of times purchased
- expected duration of the partnership
- the company’s profit margin
In this metric, we are going to need only one operation — multiplication.
Here is the equation: Average Sales x Number of Purchases x Expected Time Duration x Profit Margin = Customer Lifetime Value
To discuss this in a simpler sense, below is an example situation:
The average sale of your company totals to $50. With them is a regular customer who has purchased a total of 5 times in a span of a year.
Furthermore, you have a 25% profit margin. To get the lifetime value, we will solve it by:
$50 x 5 transactions x 1 year x 25% = $62.5
Take into consideration that the amount that you will get is only estimated. It may still change, whether at a higher amount or lower.
6. Return on Advertising Spend (ROAS)
Another factor that you should track is your investments, in this case, your ROAS.
This metric measures how much you earn for every marketing campaign that you put your money into.
This is important so you can determine whether your strategy is worth what you’re paying for. You also need to know if it helps your business or not.
Here is the method on how to get the rate of your Return on Advertising Spend:
- Again, collect the needed information which is: (a) total earnings generated from ads, and (b) total cost of availing the advertisement resources.
Divide the total earnings by how much the ads cost in total. Refer to this formula: Total Earnings/Total Cost = ROAS
There is no specific standard for this metric because it is dependent on other factors like the profit and the company’s expenses.
However, there is what we call a ROAS benchmark to which the marketers base on.
This benchmark states a 4:1 ratio. This means that for every dollar spent on advertisements, you should get $4 in return.
Although a low return might reflect badly on your financial statements, like what is previously stated, not meeting the given criteria does not necessarily mean your company is on edge.
7. Click-Through Rate (CTR)
Here, we have another ad-related metric. Click-Through Rate measures the percentage of people who actually click and view your advertisement upon seeing them.
This is also a good way to know if you are reaching a huge audience in your current marketing platform or if you need to add more channels.
This is quite different from impressions; however, as this only looks at the part that took enough interest in your promotion to view it.
Below are steps on how to get the click-through rate:
- Here are the data needed to complete the equation: (a) total clicks, and (b) total impressions.
- Next, divide the total clicks by the total impressions you got from a specific ad, and then multiply it by 100 to get the percent form: (Clicks/Impressions) x 100 = Click-Through Rate.
You should keep in mind that the higher the click-through rate, the better.
According to WordStream’s study, a rate of 2% is the average CTR. Nonetheless, you shouldn’t settle for aiming at the average.
Set your standards to at least 4% as this is already considered a good score.
8. Quality Score
Last but not least, let us talk about Quality Score.
This will greatly affect your rank in search engines, and subsequently, your visibility rate online.
Your score can be anything as long as it ranges 1 to 10.
On a side note, you should know that you don’t measure this yourself.
This is given by search engines like Google, Bing, and Yahoo.
However, you can affect this by optimizing the following metrics:
- Click-Through Rate
- User Experience
- Website Performance
- Advertisement Performance
It is very important that you constantly check this, so you have an idea about how your website is doing in search results.
Not all of these important advertising metrics for online businesses apply to every ad.
For example, you do not have to calculate the bounce rate if you only have a two-page website.
Also, you do not need to calculate the profit if you are not actually selling something.
Choose the important digital marketing metrics that apply to your business.
If the metric is not meeting your expectation, you have to consider changing the advertisement and its components.