Omniture's Search Engine Marketing Readiness Survey showed that 43% e-commerce businesses do not know how to accurately measure profit per customer/order, while 31% cannot measure cost per sale. The findings are concerning and show a serious flaw in how businesses measure success of their paid campaign.

It is apparent that businesses and search marketers are unaware of deeper analytic data and its ability to help them effectively analyze paid search performance. With limited marketing budget, every ounce of data is crucial if it helps to make better informed decisions and more money.

Selecting appropriate paid search engines is crucial but measuring the effectiveness of your paid search campaign is critical. In this edition of our newsletter, we would discuss metrics that should and should not be used to define the success or failure of paid search campaigns.

The one thing that is evident from Omniture's Search Engine Marketing Readiness Survey is that a large section of businesses use the most basic metrics to evaluate the performance of paid search campaigns.

Far too many businesses and search marketers are overlooking important data while managing paid campaigns, and are attributing too much importance to superficial metrics. As a result of this, their evaluations and judgments based on these evaluations are skewed.

Businesses and marketers ranked conversions as the most important metric, while click through rate (CTR) and cost per click (CPC) ranked second and third respectively. It is a relief that number of impressions did not make it to the list.

Higher CTR, lower CPC, and higher conversion rate are usually perceived as signs of a successful campaign. This, however, may not always be the case.

CTR figures could be misleading because a higher CTR does not necessarily mean that the Ad is producing the desired results.An Ad having 10% CTR could possibly generate less revenue as compared to an Ad having a CTR of 6%. CTR only depicts a single stage of the entire revenue generation cycle and is not an indication of the end result. Therefore, the usefulness of CTR is mostly limited to Google Adword quality score and its effect on cost per click (CPC).

Cost per click (CPC), on the other hand, is not an absolute metric as it depends on CTR. Its dependence on CTR, which itself is not a very meaningful metric, makes it a relatively less insightful metric. Business should not equate lower CPC to campaign success. As with CTR, CPC only shows what happens 'in between' a click and the revenue being generated. It is useful in adjusting bids and setting position preferences but that's about it.

Both these metrics cannot be tied directly to revenue generation and only show a partial picture.

Conversion rate (CR) by no means is a comprehensive metric for defining the success of paid search campaigns. It is true that if you send qualified prospects to the wrong landing page, conversion rate (CR) would suffer. But this is the only instance wherein CR can be directly related to the ineffectiveness of your paid search campaign. In majority of the cases low conversion rate is attributed to issues such as usability, copywriting, design – in all the effectiveness of a web page in engaging visitors to perform the desired action. Conversion rate, therefore, can not be taken as a definite indication of a paid search campaign performance.

We by no means are trying to imply that these metrics are unimportant, but you would only be able to get a myopic view of your campaign performance by tracking them and miss out on the holistic picture.

If click through rate (CTR), cost per click (CPC), and conversion rate (CR) does not give you the whole picture, which metrics do? Well, there are two revenue impacting metrics that can give you a precise understanding of how your paid campaign is performing.

1. Cost per lead (CPL): It is imperative for businesses to know the exact amount of money being spent to acquire a lead. A business should deem a paid campaign to be successful if the CPL is less than or equal to the expected value. Without measuring and analyzing CPL, businesses would never be able to ascertain if their marketing dollar is delivering a positive return.
   
   This performance metric is especially important for businesses running paid campaigns for the sole purpose of generating leads. If the actual value of the lead is less than the cost incurred in generating it; the campaign has failed its objective. For business where lead is intermediary to actual sale, CRM integration is necessitated to relate lead to sale.
   
   
2. Return on advertising spend (ROAS): This performance metric is the one that every ecommerce shop owner should be watching and scrutinizing religiously. ROAS helps you to measure the revenue generated for every marketing dollar spent. Needless to say that if the profit does not exceed the advertising spends by a comfortable margin, the campaign needs to be reviewed or scraped altogether. We say ‘comfortable margin’ because ROAS only shows the relationship between advertising spend and profit realized, and does not account for overheads such as labor, infrastructure, etc.
   
   This single metric should be used to define the success or failure of your paid campaign; more than anything else.

It is astonishing to know that while 85% of the survey respondents' primary goal was to sell products or services online, a majority of them did not list CPL and/or ROAS as an important metric.

It is quite evident that judging the efficacy of a campaign on KPIs like CTR, CPC, and CR will only present an incomplete picture. While they still are good indicators, slightly less basic metrics like CPL and ROAS should be your focus.

Do let us know if you found this information useful. We would look forward to hear from you.