When you invest time, energy and money into your business, knowing whether or not your marketing efforts are producing results is crucial to your success. In this video, I'll share 4 digital marketing metrics that can help you determine ROI.
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ROI, for those of you who are wondering or aren't sure or aren't used to using this term, stands for return on investment. What we want to make sure, is that the money we're spending towards our marketing, the time, the energy we're putting into our marketing, is delivering the results that we're expecting. Not all campaigns are going to do what we want them to do, and this is why multi-channel campaigns, looking at different ways to reach our customers, is really good. This is going to allow us to see which ones are working the best and giving us those results. This allows us to optimize our ROI around the channels that are delivering those results for us.
The goal of marketing is to get the most results for the least amount of investment. We want to make sure that our dollars are going as far as it can, that we're attracting the right people, that we have a message that's engaging. In order to optimize our ROI, it really is important that we grasp these digital marketing metrics, especially if you're using digital channels like Adwords or Facebook ads, email marketing, search campaigns, things of that nature. These metrics are extremely important to understand and, not at a basic level, but really how we can optimize around them.
The first one we're going to look at has typically to do with search and display advertising, and this is cost per click. Now, this is where the advertiser will pay every time a user clicks on an ad. A lot of companies like to use this because they're only paying for users who are interested in their products or services based on the keywords that they're bidding on and the placement they're trying to get. Now, cost per click. Most of the time, you would assume if you hear cost per click, you know whoever's paying the highest is going to get the most exposure. That's not always the case. Even what your maximum bid might be isn't always necessarily what you're going to pay. Let me explain a little bit further.
Google uses a quality score system to determine cost per click. They'll go look at your quality score. They'll look at something called ad rank and they're going to factor both of these in as well as your competition. Now, this actually plays in to help you if you have a better ad, a higher quality score than your competition. It's actually going to drive your price down and allow your dollar to go further. This is why having a good ad copy, good keyword targeting, good landing page copy, and experience, plays a huge role in what you pay. It's not throwing money at a problem, it's being strategic about it.
Your price is going to equal the ad rank of the person below you, and then you divide that by your quality score, and then you add a cent to that. Now, this equation can be a little confusing so I've made a chart to help explain it a little better. Let's say we've got three different advertisers here, we've got advertiser one, two and three. Each of them has a different maximum bid, a maximum price. They're willing to pay for an ad placement. Now, the first one is $2, $4, and then all the way down to $6.
As you can see here, they also have different ad quality scores and the quality scores are also going to play a role in your ad rank. The quality score is really looking at what's the quality of your ad, what's the quality of the keywords, the experience, and it's going to factor in your keywords, it's going to factor in your ad copy and your ads. It's going to factor the landing page that you're sending people to from your ad.
Advertiser one has the highest quality score, it's out of 10, they've got a 10. Advertiser two's got four, advertiser three's got two. Now, you can see their ad rank is directly correlated to the maximum bid times their quality score. Now, what Google will then do, like the equation we looked at right here, the ad rank of the person below you divided by your quality score. This first guy, the person below them, is going to be right here, number 16; so 16 divided by 10 plus one cent is a $1.61, that's what they're actually going to pay per click.
That's nearly 40 cents cheaper than what they said their maximum bid would be so they're actually getting 40 more cents on the dollar just by having a better quality score, optimizing their campaigns to be stronger. Advertiser two, again, they're looking here so they've got this 12 ad rank here and they're going to divide it by their quality score and add this in here. As you can see, they have a $3.01 actual cost per click so they're getting about another dollar, even though they're willing to pay, they're paying twice as much almost as an advertiser above them in that same category.
You can see that this guy right here is allowing him to bid on the same terms, allowing him to fight for the same spots in organic search but actually pay significantly less because he's optimized his campaign. This is going to deliver a much higher return on investment because your dollar is going to go further. Understanding how cost per click actually works and then how you can leverage that in your marketing campaigns can help make your money go further and help drive higher results.
The next metric we're going to look at is CPM and this stands for cost per thousand. This is where an advertiser agrees to pay a set price per a thousand impressions or displays. They're not paying for the clicks, they're paying just to be seen. The M here represents 1000 in Roman numerals, if you are wondering. A lot of people mistake this and say cost per million, but really it's cost per thousand. Let's say a website has 6,000 visitors, your price will be determined based on the amount of visible users you can see, and let's look at the actual equation.
What it would be, it would be the total cost in campaign budget divided by the total desired impressions, and you multiply that by a thousand and that's going to be your cost per thousand. It's pretty easy to do. Taking any kind of website here and adding in the cost of the campaign budget, maybe it's a a hundred bucks, and then let's say out of that hundred bucks you want to have a hundred impressions, zero, well obviously that wouldn't work out because now we're multiplying by zero but you get the idea of how that cost could be worked out here.
It's not a hard thing to figure out and this is what a lot of display or banner advertisement uses here. They will also use this in more traditional marketing so let's say you've got a magazine. You can do cost per a thousand based on your audience reach. When people are selling you traditional media or banner displayed media, this is how you can factor in your cost per thousand and how much you're paying for that visibility. Again, that's what you're trying to figure out. How much am I paying, how much am I investing to get the results that I'm looking for?
Next we're going to look at CPA, which is cost per action or we're going to look at what's called ECPA, which is effective cost per action. Cost per action is also known as cost per conversion. This is the metric that measures the amount spent, whatever action taken by potential customer. You're going to take the total marketing spend and you're going divide that by the total number of conversions. This is extremely helpful because this allows you to know how much you're paying for each one of those leads.
For instance, let's say you have $100 to spend in your marketing budget and you've had 10 conversions. Each one of those conversions would cost you $10. If that's too high or let's say your product is worth $5 and you're paying $10 for a new customer, well you're losing money, right? This is a helpful thing for businesses because they know that if the channels they're using are producing results and actually heading in the right direction.
Now, the effective cost per action or ECPA is measured of the actual amount spent to generate an action. This is different in the only sense that it tells you what the CPA would be so the cost per conversion or the cost per action would be if you bought or if you got actions or if ... It's kind of looking ahead and projecting what those costs per actions would be. Again, this would be the total market spend, it's the same equation, and you divide that by the total number of conversions.
Again, let's say your widget costs you $5 to make and you're looking at a campaign that you're going to spent $100 on and they're guaranteeing you 10 conversions out of that. Well, now you're paying $10 for those conversions, your widget's $5, selling for $5, it's not going to work out, right? You're going to lose $50 on it and it's not going to be economical for your business.
It's important for you to understand the cost per action, cost per conversion, because this is going to allow you to know whether or not you're getting the results that can sustain your business. If you're heading in the wrong direction, before too long your business is going to go under. Similar to this is conversion rate. Conversion rate is any action that's desired for a visitor to take on your site. This isn't necessarily going on the monetary value, it's looking at how your site converts overall. Now, conversion rate is part of SEO, it's part of email marketing, it's part of blogging, it's part of ads. It really reaches all over the place when it comes to digital marketing, any of these are, even cost per conversion and cost per action, you can look at that based on what you're paying in a retainer.
Conversion, what we're looking at here we're going to be taking the total number of conversions and we're going to divide that by total number of ad clicks or a total number of site visits or total number of emails read. Then, we're going to multiply that by 100 to give us that percentage point. Most sites, there's different metrics, are going to have different goals for this conversion rate and you get to set what a conversion is. Then, when somebody kicks a button, when somebody fills out a form, you need to understand what those conversion points are so that you can accurately measure and track the number of conversions you're getting so you can see what your conversion rate is.
This is a metric I use daily with all of our clients as well as our website. We have conversions set up for different goals based on the strategic business outcomes that either we're looking for or the business is looking for. This is very helpful, allows us to know if we're on the right track, and for businesses to know if they're getting the results that we promised them and they're expecting from us.
These were four digital marketing metrics and, as you can see, each one of these you could apply directly to your ROI, your return on investment. That allows you to see if you're headed in the right direction, if you're getting the investment back into your business. Now this one's Digital Metrics. Google Analytics also has Web Metrics so this is a little bit different but they're correlated with Google Analytics. You can track things like conversions and goals and cost per click. You can set these up inside your goals there.
What we've done is we've created a metrics guide that you can download and we walk you through, describe what the metrics mean so it can help you track better. If you're interested in that, go ahead and click the link and download it, it's absolutely free. If you have any questions on anything that we talked about today in this video, please comment below. We would love to continue the conversation with you. Until next time, Happy Marketing.
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