Measuring Impact with Metrics
Measuring performance based on previously established objectives is useful in determining the quality of advertising efforts.
LEARNING OBJECTIVES
Derive useful data metrics from advertising campaigns, and recognize the importance of establishing advertising objectives
KEY TAKEAWAYS
Key Points
- Performance-based advertising has grown in popularity as advertising campaigns have shifted towards online media. These types of advertising campaigns are easily measured by a variety of merics.
- Thinking strategically and planning objectives for each campaign, as well as selecting key metrics to measure along the way, enables performance-based advertising approaches.
- Some metrics will focus on the overall reach, and cost of reach for an advertising campaign. These are referred to as CPI or CPM.
- Other metrics will measure overall clicks, and the costs per clicks, relative to other campaigns. These are measured as CTR, CPC, and CPO.
- GRP will look at overall exposure relative to the market size, which is useful in understanding penetration of key segments.
- When taken in combination, these metrics can paint a clear image of which campaigns are doing well, and which campaigns make financial sense to continue (or discontinue).
Key Terms
- performance-based advertising: A type of marketing that focuses on paying advertising costs based upon the success of campaigns.
Performance-Based Advertising
When utilizing advertising tools and releasing new campaigns, it is critical that marketers measure the impact to understand what works and what doesn’t. There are many ways to measure an advertising campaigns efficacy, and determining what the objectives are before releasing the campaign is an important step in the process.
Thinking strategically, tactfully, and proactively offers the best opportunity for accurate and meaningful metrics. This is often referred to as performance-based advertising.
Advertising Metrics
With the massive growth in online activity and potential channels of promotion, the measurement of marketing and advertising efforts consists of more tools and possibilities than ever before. Understanding the opportunities for measurement within the field of performance-based marketing is the first step to accurately planning campaigns which can be measured effectively.
This list of potential metrics is a great starting point for peformance-based marketeers to consider, particularly online marketers:
Cost Per Click (CPC) – Simply put, the organization can look at an online campaign’s overall costs and overall clicks. By dividing the overall cost by the overall quantity of clicks, the advertising team can determine how much each click is worth. Keep in mind, a click is not necessarily a sale! So other metrics may be required to make financial sense of a CPC data point.
Cost Per Impression (CPI) – Also referred to as CPM, the cost per impression is usually measured in the cost per thousand impressions (due to the massive volume of online distribution). If a campaign costs $10,000 and reaches 1,000,000 people, the cost per thousand impressions (CPI) is $10.
Reach – A simple metric, reach determines the overall volume of potential consumers an ad will engage. This is a useful input variable for a variety of other metrics, as well as a viable metric in and of itself.
Gross Rating Point (GRP) – With an understanding of CPI in place, this metric expands on that data point by comparing it to the overall penetration of the target market. That is to say, a GRP is going to measure the total number of impressions relative to the overall size of the target population, or GRPs (%) = 100 * Impressions (#) ÷ Defined population (#).
Click-through Rate (CTR) – The click-through rate (CTR) is related to the CPC and CPI, but measures a relative percentage of impressions to clicks. This is a bit different than the other calculations, as it implies relevance and quality from the eyes of the consumer between advertisements. So if advertising campaign A has a CTR of 2% and advertising campaign B has a CTR of 4%, it would appear that B is twice as relevant when it comes to engaging the target audience. However, this does NOT mean it is more effective financially (although it likely will be).
Cost Per Order (CPO) or Cost Per Purchase (CPP) – Finally, we get to the financial certainties. At a certain point, the organization will need to financially justify advertising campaigns. This is not always easy, as attributing a campaign to a purchase is not always completely clear. however, a CPO or CPP will track and measure users throughout the channel to see which advertising campaigns ultimately result in a purchase. This CPP must be lower than the margin per customer purchase, otherwise the campaign is losing money (at least in the short run).
Advertising Example: This is a good example of a measurable advertising campaign, which would reflect most of the performance-based metrics in this discussion.