Google Adwords is perhaps one of the most advanced, sophisticated advertising platforms created to date. It allows you to reach customers on millions of website, by search terms, contextual information, previous sites visited, personal details and much more. This level of complexity often confuses novice users into focusing on metrics that are, in a word, vanity. The following is a list that represents some of the common vanity metrics within the AdWords system:
- Click-Through rate (CTR)
- Average Position
- Cost Per Click (CPC)
- Quality Score
These metrics certainly can speak about the effectiveness of any given campaigns performance within the system and can be used by the manager of an account to the effect that accounts reach and cost structures. However, when looking at the results from a meaningful business perspective, these metrics fall far short of what is needed to understand if the channel is providing real value to the business. As an example, I would ask does a higher CTR mean that your business will be more profitable within a given ad group or campaign? Would it not be possible to have a company altering sale come from an ad group or campaign that has a terrible CTR, Few Impressions, and Poor Average Position? I submit that it is and that it has happened.
What’s the Goal of effective Adwords Management
I believe that effective management of any online campaign, but especially of Adwords, requires you to have predictable business outcomes. Imagine these two scenarios :
1. The Adwords Campaign for Savvy Flowers is performing well within the commonly viewable metrics of Adwords. The average Cost per Click is $2.43, and with the clients budget, one is getting about 15 clicks per day, 450 per month. The CTR is 6.5%. This average position of the ads is 1.3.
2. The Adwords Campaign for Mike’s Doughnuts is also performing well within the commonly viewable metrics of Adwords. The average Cost per Click is $1.43, and with the clients budget, one is getting about 12 clicks per day, 360 per month. The CTR is 7.2%. This average position of the ads is 1.5.
Which has the better campaign? How do you know?
What if I gave you so additional critical metrics – like conversions.
Imagine that Savvy Flowers had ten conversions while Mike’s had 105. Without meaningful metrics, we can have fantastic vanity metrics but no positive business outcomes.
One challenge with this is defining what a conversion means to your business. (NOTE: Many companies struggle to translate online actions to offline actions. This problem is why trend tracking is so critical in measuring marketing outcomes. However, that is a subject is beyond the scope of discussion here.) When defining a conversion (read lead, in all non-e-commerce situations) for your business there are several meaningful metrics that I heartily recommend. First, are phone calls – closely followed by web form submissions. Unless someone is completing a purchase, I tend to stay away from the page visit conversion types. (NOTE: I am not discussing imported or app-based conversions, as it is again outside of the scope of this discussion but maybe something that we look at another time.) This conversion data is our first step toward getting meaningful metrics.
What are the Meaningful Metrics for success with Adwords?
I believe that five key metrics will help you succeed with Adwords ( and most other ad platforms as well):
- Channel Acquisition Cost
- Number of Leads to Sale Ratio
- Total Sales by Channel
- Average Gross / Net Profit per Sale
- Lead Velocity
While my focus here is not to define these metrics but rather to show you how to use them.
How to use These Meaningful Metrics
First and foremost, we need to understand how many leads come through the system using a conversion model. From there we calculate our Lead to Sale Ratio and the Channel Acquisition Cost.
From there we compare our company-wide Average Gross and Net Profit per sale to our Channel Acquisition Cost to determine the profitability of the Adwords Campaign.
We Then examine the lead Velocity to determine if the campaign can be viable to bring in enough leads fast enough.