2 Key Formulas for Understanding Your PPC Data
Pay-per-click advertising is a marketing tool that is highly focused and effective, but in order to understand how it may work for you, there are specific metrics that you need to follow and formulas that you need to know in order to assess the true value of your efforts to market using PPC.
Cost Per Click (CPC) and Return On Investment (ROI) are two of the most important formulas you require, but within those categories, there are other related formulae that can offer you a better knowledge of your PPC performance.
When you delve deeper into the metrics that matter for PPC data, you’ll find formulas for things like cost per thousand impressions, click-through rate, cost per acquisition, and conversion rate. Each of these formulas will provide you with the essential information that you need to develop and implement a successful PPC campaign. Let’s plunge in!
1. The cost of each click.
When it comes to running a pay-per-click campaign, one of the most crucial calculations you need to perform is the cost per click calculation. This is because this calculation will give you the precise cost of each click. The straightforward equation to calculate the cost per click is as follows:
The Total Price Divided by the Amount of Clicks
For instance, if you paid $250 on the entire campaign and generated 200 clicks, your cost per click would be $1.25; this is a very affordable price considering the average cost per click, which is $2.14. That works out to a cost of only $1.25 for each of those two hundred new (potential) leads.
Formula for Cost Per One Thousand Impressions is Also Available
CPM, sometimes known as cost per mille, is a metric that functions very similarly to CPC, with the exception that it measures success in terms of thousands of clicks. In addition to this, it considers the ratio of the number of people who view your advertisement to the number of people who click on it. This calculation will indicate how many people are seeing your advertisement (one view counts as one impression), as well as the cost associated with increasing your visibility among potential customers. The following method can be used to calculate cost-per-thousand impressions: (Total Cost / Number of Clicks) x 1,000
In the scenario in which you paid $250 for the entire campaign, let’s say that the advertisement was viewed by 9,000 people. How much did you make? In that scenario, your cost per thousand would come out to $27.77, which is a little bit higher than the typical cost of $24.74
Click-Through Rate also has its own formula.
The click-through rate is significant because it mediates the relationship between your cost per click and your cost per thousand impressions. CTR, or click-through rate, is a metric that compares the number of people who view an advertisement to the number of people who actually click on it. You may calculate CTR using the following formula:
Calculated by multiplying the ratio of clicks to impressions by 100.
Your click-through rate would be 2.2 percent if your $250 campaign got 9,000 impressions and 200 clicks, as shown in the previous example. The click-through rate, or CTR, is an essential indicator since it reveals how successful an advertisement is.
If, for example, your click-through rate is lower than the industry standard of 1.16 percent, then you may want to consider conducting A/B testing on various aspects of your advertisement to determine where and how it may be improved in order to achieve better results.
2. Ratio of Profit to Invested Capital
When determining the cost of your leads, it is important to know both the cost per click and the cost per thousand impressions (CPM and CPC), but the return on investment (ROI) is likely more important. The return on investment (ROI) metric is essential since it analyzes not just the costs of the campaign but also the results it produces.
It provides you with data that can be measured, such as numbers, about the benefits of your PPC efforts and informs you of the number of sales that are being created as a result of the campaign. Comparing the return on investment (ROI) of different initiatives provides you with crucial information into whether campaigns are functioning well by attracting leads, driving conversions, and increasing revenues. This is just as important as the previous point. The following is the formula to determine return on investment:
(Cost of Campaign minus Revenue Generated) divided by (Cost of Campaign) multiplied by 100
Consequently, if your $250 campaign created 200 clicks that ultimately resulted in $275 in sales, then your return on investment (ROI) would be 10%.
Calculating the return on investment (ROI) for a pay-per-click (PPC) ad campaign can be challenging due to the fact that it is not always possible to directly attribute a sale to the ad campaign. Take for example a customer who saw your PPC ad, clicked through to your site, browsed around, but ultimately decided to call in their order rather than purchase online.
You wouldn’t be able to tell by looking at your online analytics for PPC reporting that the sale was connected to the PPC campaign, despite the fact that it was, which would cause your return on investment calculations to be inaccurate. There are additional procedures that need to be taken before you can accurately assess the return on investment (ROI) for pay-per-click advertising. Call tracking is one method that might help you see the wider picture. This method gives you a variety of phone numbers that you can put on a variety of landing pages depending on the keyword.
Formula for Related Topic: Conversion Rate
In relation to return on investment (ROI), another formula that you need to be familiar with is the conversion rate, which is the percentage of leads that ultimately become customers after clicking through. It is essential to keep in mind that although conversions most commonly refer to sales, the term “conversion” can truly refer to any action that you are working toward convincing a prospect to participate in.
A person could become a conversion by doing something like subscribing to your newsletter, downloading an electronic book, or filling out a contact form, for instance. However, the formula for calculating conversions remains the same regardless of which of these scenarios is being considered:
(Amount of Conversions to Amount of Clicks) multiplied by 100
You already know that your campaign generated 200 clicks and eight conversions, giving you a conversion rate of 4 percent. This would actually be a high conversion rate considering the average conversion rate among marketers who use AdWords is 2.7 percent. You know this because the previous examples showed it to you.
It is highly recommended that you set up conversion tracking for each and every campaign that you run. This is due to the fact that the conversion rate is such a crucial indicator in your PPC reporting. To reiterate, if you want the most accurate information regarding the results of your PPC efforts, you need to make sure that you track all conversions, including the ones that don’t come in through your website.
Why is tracking conversions considered to be so important?
Tracking conversions is essential because it provides you with an accurate picture of the results your marketing efforts are producing. PPC’s ultimate goal isn’t just to persuade consumers to click on ads, but also to convince them to make a purchase.
Therefore, if a campaign is successful in generating clicks but not conversions, then either the campaign itself is not operating well or there is an issue with either the landing page or the sales funnel. When it comes to tracking budgets, revenue targets, and conversion targets, using a PPC ecommerce tracker can be of great assistance.
If you discover that there is an issue with your conversion rates, you should revisit your web analytics to determine the point at which people are leaving your site in order to locate the source of the issue. You may also retarget customers who have abandoned their shopping carts by sending them survey emails in an effort to learn more about the reasons they did not complete a purchase from your business.
Formulas Related to This: Cost Per Acquisition
The cost per acquisition calculation, which is also known as the cost per conversion calculation, is a more in-depth version of the cost per click calculation. Unlike the cost per click calculation, the cost per acquisition calculation goes beyond the basic number of clicks to determine the cost of each conversion that was achieved.
This is of the utmost importance since even though your campaign might have generated 200 clicks, it’s likely that only eight of those leads really converted, and you need to take into consideration both metrics. The following is the formula for calculating CPA:
Cost of PPC Campaign in Relation to the Amount of Conversions
If your $250 campaign was successful in producing eight conversions, then the cost of each acquisition would be $31.25, which is rather close to the average cost of $33. Your CPA is an essential statistic to use when evaluating the efficacy of your bidding strategy since it provides precise information regarding the amount of money required to win over a new client.
Putting It All Together: An Understanding of Your PPC Data
When conducting an analysis of your pay-per-click (PPC) data, the cost per click (CPC) and return on investment (ROI) are two of the most essential metrics to focus on. However, within each of these categories, there are additional formulas that can be used to generate important calculations about your efforts.
When it comes to pay-per-click (PPC) reporting, the general consensus is that things like return on investment (ROI) and conversion rates are among the most important metrics to pay attention to, but there are a number of other factors that you need to take into consideration as well if you want to get the full picture.
If you don’t intend to adjust your campaigns with the purpose of making them more effective, then there’s no use in even gathering the PPC data in the first place. This is another essential element to keep in mind, so make sure you don’t forget it! Rather, it is essential that you use these formulas to gather information and then modify or adjust your PPC efforts accordingly in order to attain the level of performance, conversions, and return on investment that you are seeking.
