Don’t spend one more penny until you read this article.
It will make you rethink your entire strategy and consider what really drives a profitable campaign.
In this article, we’re going to discuss the 5 metrics you need to pay close attention to when running PPC campaigns.
Metric #1 – ROI (Return On Investment)
The first metric is one that a lot of people actually miss: ROI (Return On Investment)
ROI is so important since it justifies you putting resources and efforts towards an action.
We see that most businesses get stumped when it comes to ROI because they aren’t confident in their numbers, and likely have never spent a large amount of money on advertising in the past.
This makes it nerve-wracking to see money going out, but not understand how you can make it back.
We treat marketing as a science, but your initial estimates do not need to be down to the penny to get a good ballpark idea of your ROI.
Often, once we show customers the math of how advertising can work, their eyes open up and everything starts to *click*
When we set up a client’s campaign, during our onboarding call we work with clients on getting the answers needed to understand where their break-even and profitable points are.
To start, let’s figure out our ROI on our new campaign investment.
(Profit – Investment) / Investment = ROI
Example: ($2,500 profit from new business – $500 advertising) / $500 advertising = 400% ROI
If you do the math before you run a campaign, then you can be confident when spending money on advertising.
We always set base metrics to see if a campaign has the potential to work for your business, then we optimize based on what happens during testing.
To grow the ROI of your campaigns, there are lots of strategies to employ: Cutting out non-performing keywords, adjusting device/demographic bids, testing new ad copy and angles, increasing your landing page conversion rate, etc.
Inside of HOTH PPC, we focus on a positive ROI but also continuously improving the ROI through daily & monthly optimization.
Instead of scrambling through a bunch of spreadsheet calculations, check out free PPC ROI Calculator here.
ROI is by far the MOST IMPORTANT metric. Now let’s dive into the specifics of some other metrics that will influence your results.
Metric #2 – CPL (Cost Per Lead)
A CPL or Cost Per Lead is a key metric when analyzing your campaign or preliminary research to understand where you need to be profitable.
When calculating your CPL you can use this basic formula.
Cost Per Lead Formula:
Advertising budget / Number of leads = Cost Per lead
Before we begin a campaign, we don’t have all this information, so here’s how we estimate it:
1. First, we need to find the number of leads we think we can get from the campaign.
(Advertising budget / Average CPC) x landing page conversion rate = Number of leads
($1000 / $5 CPC) x 10% Conversion Rate = 20 leads
2. Then we’ll figure out approx how much it costs per lead.
Advertising budget / Number of leads = CPL
$1000 / 20 leads = $50 per lead
This quick calculation will help you gauge the performance of your campaign and set some short term goals.
Keep in mind with any advertising campaign there is a 3-4 week ramp-up period. You might not be hitting this goal on day 1.
The conversion rate percentage is based on using a laser-focused landing page to boost conversions.
Typically, when a customer comes to us they are using their website or non-optimized landing pages, and these convert at around 2% throughout the whole campaign, which is why we don’t use them.
Instead, we design an implement conversion oriented landing pages, where we can achieve 10%+ conversion rates.
Laser-targeted landing pages are perfect for reducing your cost per lead, driving up your conversion rates, and boosting your ROI.
Metric #3 – Close Ratio
The next step in understanding your metrics when it comes to advertising is your close ratio.
Simply put, what percentage of leads are you turning into closed deals.
Number Of Sales / Number of Leads = Close Ratio
There are lots of things that influence your close ratio including:
- Your follow up process
- How quickly you follow up
- Your offer
- Brand awareness
But there a lots of thing you can also do on the advertising side to improve your close ratios like:
- Pre-qualifying candidates through ads copy, landing pages, and forms
- Cutting underperforming keywords
- Creating highly targeted offers
In general, a good close rate is 20-30%, but this can vary drastically.
If you aren’t exactly sure what your current close rate is, that’s ok. I suggest using 20% as a guideline, then start tracking over time as your leads start rolling in.
Let’s look into how many leads you have the opportunity to close.
New Revenue Formula:
Number Of Leads X Close Ratio X CLTV = new revenue
25 Leads X 20% X $2,000 = $10,000 in new revenue
When we start doing specific calculations like this, your ROI really starts to make sense.
Showing this to clients or management can be super useful when setting goals for specific campaigns.
Inside of HOTH PPC, we dive into these numbers daily with our clients and also follow up with our clients to figure out the lead quality being produced from our campaigns.
If we’re seeing a lower close rate compared to the last month then we can dive into further campaign optimization.
We’re always looking to make sure that lead quality is high.
If your keywords are on point, then you may want to look into your messaging as a whole. This will really help by pre-vetting your traffic and turn away unqualified leads.
Metric #5 – CLTV (Customer Lifetime Value)
Another metric to dive into is CLTV or “Customer Lifetime Value”.
This is crucial to understand your break-even and positive ROI points.
If we use a service-based business, like an HVAC company for example, their CLTV is on average $5000 – $10,000.
That average is over a lifetime. That does not mean they will get that on their first sale but over the lifetime of retaining that customer.
Average Number of Purchases * Average Purchase Price = CLTV
When running ads for your business keep in mind a few scenarios for these new leads or fresh sales that hit your inbox.
- Some people may not buy right away, you may need to follow up with them and nurture them to cross the line.
- Once you have built trust with someone, they often buy multiple times.
- When you get a lead, you always have the opportunity to up-sell, down-sell, or even cross-sell services. This tactic will provide more value to your customers and increase your CLTV.
- You can often multiply your results by asking your customers for referrals inside of their network. Offering an incentive like a discount, free month of service or kickback on the sale is a great incentive!
By understanding your CLTV, this can allow you to be more aggressive with your advertising.
If you want to use paid advertising to grow your business, it’s vital to understand the math behind it to be able to make confident decisions.
That’s why we always sit down with our clients and do the math before we even spend a penny!
Ready to see some positive ROI on your existing or next campaign?
Sign up for a free consultation with one of our PPC experts. They will walk you through the process and figure out what holes in your process need to be filled.
Thanks for putting this together! It’s very interesting to see all of the different perspectives.