Audience comparison and marketing ROI
Keep more of your money when you manage advertising with various measurements to track ROI, tweak choices and renegotiate media prices. The ability to continually reduce the cost to acquire a customer is an ongoing challenge. Metrics must be monitored and analyzed regularly. Changes to improve results can begin immediately and take effect almost instantly for digital media, weekly, bi-monthly or monthly for TV, radio and magazines, respectively. Success comes with constant campaign refinement.
Traditional media measurement looks at viewers, listeners and readership by reporting audience in thousands. Evaluating media for purchase then looks at the cost to reach one thousand people, or CPM. Another metric is the cost to reach one percent of an audience segment or cost-per-point (CPP), such as 1% of households or age and sex demographics. Media buyers compare apples to apples, negotiating the cost to reach audiences across dayparts between different stations, for instance.
Generating leads is important, especially for high-ticket items that require many touches prior to a sale. Business-to-business (B2B) marketers invest heavily in advertising that collect contact information of interested parties. Business-to-consumer (B2C) companies selling big-ticket items and long-term service agreements also use lead generation and nurturing activities to close sales.
One method of measurement is the cost-per-lead (CPL) statistic, otherwise known as a cost-per-acquisition (CPA). The method could involve a form filled out a web site, a call to a telemarketer or a card sent by mail.
Digital advertising introduced cost-per-click (CPC) actions to the mix. Pay-per-click (PPC) advertising sends interested web visitors through to specific pages from links. These landing pages may include forms or finalize purchases. Additionally, marketers assess click-through rates (CTR) to measure ad effectiveness and offer appeal. Finally, they track the rate that visitors complete transactions, or convert, after a click.
While the most efficient sales and marketing metrics are performance-based, such as the cost-per-sale (CPS) or cost-per-acquisition (CPA), tracking the thousands of impressions (CPM) and average number of clicks (CPC) to achieve these actions allows advertisers to broaden campaigns to more desirable media with larger audiences.
Many marketers bootstrap campaigns by using media that will accept CPS or CPA ads until they can build up coffers to expand campaigns. That means using small web sites, affiliate programs or broadcast and cable channels that allow direct response advertising. Data from campaigns reveals the original audience sizes, the clicks, click-through and conversion rates. With that information, marketers can extrapolate what CPM or CPC is required to yield the desired CPS, also called cost-per-order (CPO).
If the desired goal is to pay $30 in media to acquire an order, then, assuming a 2% click-through rate with a 2.7% conversion rate, it would take $810 to realize 27 orders.
If 2% of an audience of 50,000 click on an ad, that would produce 1000 clicks. At 2.7% conversion, the clicks would generate 27 orders. Testing media that required payment on a CPM basis, a budget of $810 allows a $16.20 cost-per-thousand:
$810/50 (000) = $16.20
50,000 visitors x .02 CTR = 1000 clicks
1000 clicks x .027 conversion = 27 orders
$30/order x 27 orders = $810 media budget
Alternatively, a media channel on a CPC basis would allow $.81 per click on average: $810 / 1000 clicks = $.81 each.
The core strategy is to book as much media as possible on a CPO basis, the way that affiliate programs are run, then to expand slowly and gradually, continually testing new channels of CPC or CPM advertising.
There is still some risk involved to run a campaign when buying media on a CPM or CPC basis. But when the largest media are only sold that way, it’s important to manage that risk with frequent, systematic monitoring, analysis and modification.
Average click-through rate: http://www.wordstream.com/average-ctr
Average conversion rate: http://www.wordstream.com/blog/ws/2016/02/29/google-adwords-industry-benchmarks