Is your company planning an advertising campaign? Choosing the right digital advertising metrics to track and measure your digital campaign is crucial to make sure youâ€™re getting a return on investment (ROI). Tracking advertising efforts correctly and regularly means you can identify whatâ€™s working and where to focus your advertising dollars.
Determining your core ROI goals means youâ€™ll also be able to measure data that tells the story of how your target audience interacts with your ads.
Here are a few of the key metrics to track in order to help you measure success and determine your ROI.
Cost Per Acquisition (CPA) = Cost Ã· Conversions
How much does it cost you to acquire a new lead on any given channel?
Knowing the cost to acquire a client for your business is the basis of your marketing budget, so itâ€™s crucial data to add to your ROI analysis. Combined with other ad data, this will determine whether your business will make a profit.
Ideally, youâ€™ll want to understand which mix of ad channels (ex. social media marketing or email marketing) work best for your business. Then youâ€™ll be able to better optimize your ad budget going forward.
Next up, find out the actual value of your clientâ€™s customers. Letâ€™s discuss LTV, which is essential for further ROI analysis.
Lifetime Value (LTV) = Average Transaction + Annual Purchase Frequency + Expected Years of Relationship
Knowing the lifetime value of your customers will give you a number that represents an approximation of the revenue a new customer brings in, with all associated costs factored in. For example, an appliance store may sell washers and dryers or stoves. Chances are that one customer will not return to your (online) store again until at least 10 or 15 years have passed.
However, if you have done a good job advertising your store online, you could create a steady stream of people purchasing your appliances online or in person. In this example, you are unlikely to see the same customer again (unless there are warranty or parts issues), but you can become the liaison for these kinds of appliances. This will also matter when it comes to keeping your inventory current and showing a variety to make customers want to return to see what other appliances you have in stock.
No matter what your products are, if you know your LTV, youâ€™ll be able to compare it directly to the cost of acquiring a new client through your digital ad campaign. You can also figure out when is the best time to advertise your products online (ex. winter boots probably wonâ€™t sell the same in July as they would in November).
Campaign Revenue (CR) = Total Conversions x Lifetime Value Ã· Percentage of Closing Ratio
Calculating and analyzing the lifetime value of your customers means youâ€™re now able to track the revenue generated by your digital advertising campaign.
But why is the closing ratio a factor? In an ideal world, every lead would become an automatic customer. In reality, it doesnâ€™t always happen like that. Be realistic about how many new leads you close on average. Then use this number to estimate campaign revenue.
Return on Advertising Spend (ROAS) = Total Campaign Revenue Ã· Total Campaign Cost
Although ROIs and ROAs may be spoken about interchangeably, there are a few differences. While ROI measures the profits generated by ads in reference to costs, ROAs focus on gross revenue from every advertising dollar. ROIs are looking from a holistic perspective; ROAs specify advertising dollars only.
For example, letâ€™s say you spent $500 on YouTube ads for your healthcare products. From that YouTube advertising campaign, you made $1,500. Your ROI would be 100 percent (with a $1,000 profit), and you wouldâ€™ve made all of your money back.
But using that same example for ROA, it would be 3x or 300 percent. Unlike ROIs that include the team that was hired to record and edit videos, find images, complete stories for the healthcare products, etc. The ROA is solely looking at just the advertising costs that YouTube may chargeâ€”not all the factors that got your company there. (Visit Credo for a more detailed explanation or this ROI/ROA calculator to test your own numbers.)
If you set your own campaign goals and create reasonable benchmarks, you will have a better idea of how much profit you can make from advertising. And paying detailed attention to which dollars are spent where (or hiring an advertising team to take this on) will help you spend your advertising dollars smarter.