Key performance indicators (KPI) are being used almost everywhere, either knowingly or not. These are specific measurable indicators, based on which a goal can be set and tracked.
Knowing what you want to achieve and by what measurable means (partial goals) you can get there, can be a half of success. In both personal and professional life. From those partial goals you can create a strategy, thanks to which this journey will be easier. In this article we introduce you several metrics that can help you to set and track your goals in the scope of online marketing.
Key performance indicators are important even in marketing to measure the performance of PPC campaigns, so you could evaluate their efficiency or consider their optimization. Understanding key performance indicators should be the basis for anybody who decides to work with PPC advertising.
By using convenient metrics, you can accurately evaluate the return on investment and efficiency of the ad. So, which are they?
Here are the most important Key Performance Indicators (KPIs)
1. Click-Through Rate (CTR)
CTR is a rate of clicking through the ad to landing page. It is measured using simple formula:
clicks ÷ impressions = CTR
If people clicked through to your landing page 40 times and it was displayed 100 times, your CTR is 40%.
High click-through rate is an indicator of relevance and efficiency of your ad. However, it does not tell you, whether you are having any profit from the customer.
2. Quality Score (QS)
Quality score is a numeric value affecting the position of your Ad in Google Search. Google has created it to indicate, whether you content is relevant. Unlike other metrics, this one is little less unequivocal.
This indicator is based on several factors, including generally estimated CTR, the performance of landing page, relevance of the ad and its format. Good quality score, 7 to 10, indicates that you are investing little or adequately. Bad quality score, under 6, tells you are paying too much.
3. Cost per Click (CPC)
CPC means that you are paying for the clicks on your ad. You set the max. cost you are willing to pay and then you either set the bids manually or automatically. The lower the cost, the more attractive the ad is for the platform you are using it to promote.
This indicator can be easily abused by click fraud. Most of the time, it is caused by the competitors who want you to run out of your budget, so your ad stops displaying.
4. Cost per Acquisition (CPA)
CPA is similar to CPC, but instead of clicks it focuses on the acquired conversions. These are the actions you want your potential clients to take when clicking through to your page, such as purchase of product. Google automatically sets bids to increase the number of potential customers. As advertiser, you are paying for each customer you acquire.
The average CPA is calculated as the total cost of conversions per number of conversions.
To make your CPA value informative, you need to understand individual bid types, settings of conversion tracking and have at least 30 conversions in past 30 days.
5. Conversion Rate
It is a percentage of average number of conversions per ad clicks. Focusing on acquiring customers is definitely more beneficial for your business than focusing on clicks. Although the clicks show efficiency, it does not generate you profits.
Google Ads have a free feature you can use to track your conversions easily.
6. Impression share (IS)
Impression share is one of the indicators of Google ads performance. It tells you how many times your ad has been actually displayed. Formula is:
Impression share = impressions / total eligible impressions
Surely, it does not indicate you the success and efficiency of your ad, because it does not take into account how many people clicked it or took action. However, the higher your CPM, the less space for your competitors.
7. Average Position
Average position indicates the position of your ad among others. Simply put, even if you have the highest bid, your ad does not have to be displayed as the first one. In the case of Google Ads, the highest rank is 1, whereas the ads numbered from 1 to 8 tend to be displayed at the first search page.
8. Return on Advertising Spend (ROAS)
Let the artificial intelligence of Google Ads do the work for you! ROAS is a target you can set up when bidding your ads. It is one of the intelligent strategies of Google Ads Bidding. Thanks to this strategy you can reach higher rate of conversion or higher profits. Formula is:
ROAS Formula is: Revenue (total income from advertising) / Cost(total ads spend) = ROAS
ROAS can be calculated also as percentage: ROAS x 100 = ROAS%
According to this target, Google Ads automatically bid your ads while increasing CPC to max., to increase the conversion value and help you to reach the average return on advertising as you have set it up.
9. Return on Investment (ROI)
The number of clicks or number of ad impressions does not suffice when measuring the efficiency. More importantly, you need to know what the profit in relation to your investments is. Calculate ROI simply:
(Revenue – Cost of goods sold) / Cost of goods sold
The limit of ROI is that these data do not simply appear. Firstly, you have to track the conversions and the total investment into the product (product + ad spending).
10. Cost of Sales (CoS)
CoS is the most efficient metric that tells you what percentage of your profit are costs of advertising. In our case, this percentage serves to express the financial efficiency of PPC campaigns. Formula is: Cost / Revenue
If your CoS is 10% for 100-euro product sold, it means that you have invested 10 euro to sell it. It is important for you to keep this metric as low as possible. Only then you can be ensured that your investments to the campaign are not useless and you keep maintaining profit.
Optimally, you should focus on more key performance indicators (KPI) at once, as every each of them presents different value. Generally, they indicate the results and profits of your ads. If your ads are not generating good results, they need to be optimized. Otherwise, you may keep overpaying them without acquiring new customers.
How to optimize your ad? See our tips!