The Metric: Are You Using the Right Metric to Measure Your Online Advertising?

ClearSaleing Confidential

The Metric

Are You Using the Right Metric to Measure Your Online Advertising?

Adam S. GoldbergCo-Founder & Chief Innovation OfficerP: 800.592.0464 ext. [email protected]

Don’t operate in a vacuum


• 100 Pounds was a bargain to travel to the US• Sales of Hoover products jumped• People were buying Hoover products just to get the tickets• Many customers became disgruntled because they never got their tickets• Hoover spent $72 million flying 220,000 people• 365,000 customers never received their tickets• This ended up in court; Hoover vs. Sandy Jack• 3 top European executives were fired from Hoover

Goal of advertising


A company may advertise to build their brand, gain new customers, gain market share, build awareness, introduce a new product, change their image, etc., but at the end of the day all of the reasons to advertise are to directly or indirectly produce more profit.

Which sample ad is the most effective?

Sale Price: $1,000 Sale Price: $3,000 Sale Price: $3,000

Product: PN 2387

Profit Margin: 13%

Profit ($95)

Product: PDP 4250

Profit Margin: 18%

Profit $165

Product: LG 37LP1

Profit Margin: 24%

Profit $270


Cost Per Conversion$225




The CTR Myth

CTR 4% 3% 2%

Orders 70 55 40

Revenue $21,000 $27,500 $24,000

Profit $2,100 $4,125 $4,800

A B C


How to calculate an ads projected value

CTR 4% 3% 2%

Impressions 300,182 300,182 300,182

Projected Clicks

12,007 9,005 6,003

Conv. Rate 1.75% 1.83% 2.00%

A B C

Orders 210 164 120

Profit/Order $30 $75 $120

Projected Profit

$6,300 $12,300 $14,400

CPA Myths

» Lowering CPA is always a good thing

» I should place my ad where I get the lowest CPA

» Setting an ‘acceptable’ CPA at the keyword level ensures profitability


The lower my CPA the better?


Position CPA Avg. Order

Profit

1 $44 $450 $40

2 $46 $420 $38

3 $27 $415 $43

4 $30 $405 $51

5 $34 $400 $55

6 $20 $385 $54

7 $21 $360 $51

8 $23 $300 $40

Where should I place my ad?


A B

CPA $50 $25

CPC $1 $.50

Clicks 50,000 10,000

Conv. Rate 2% 2%

Orders 1000 200

Revenue $300,000 $60,000

Margin 25% 25%

Profit/Order $25 $50

Total Profit $75,000 $15,000

Wal-Mart vs. Louis Vuitton


Low Margin / High Volume High Margin / Low Volume

What is an acceptable CPA for this keyword?

» Keyword: Cuisinart Toaster Oven


Model Number Sales Price

Cuisinart A $60

Cuisinart B $100

Cuisinart C $149

Cuisinart D $179

1. (sales prices)/4 = $122 avg. sale price

2. $122 * (avg. profit margin) = $30.50

3. $30.50 = breakeven CPA

4. breakeven CPA = acceptable CPA

Will this CPA ensure profitability?

Will this CPA ensure profitability?

» Avg. sales price less than $122– CPA is too high (unprofitable)

» Avg. sales price greater than $122– CPA is too low (profitable; but could be leaving money on the table)

» Avg. sales price of toaster sold is $122 and they buy more stuff– CPA is too low (profitable; but could be leaving money on the table)

» They buy something other than a Cuisinart toaster *– CPA is too high (unprofitable)

– CPA is too low (profitable; but could be leaving money on the table)

* 44.12% of online conversions are unrelated to the ad they clicked on according to a WebTrends white paper titled “Sell More, Pay Less: Drive Conversions with Unrelated Keywords”


What’s in the cart is what matters


Product Revenue Margin CPA Profit

Cuisinart A $60 25% $25 ($10)

Cuisinart A $60 25% $25 ($10)

Camera $95 15% $25 ($10.75)

Cuisinart B $100 25% $25 $0

Average $78.75 22.5% $25 ($7.68)

Breakeven CPA = $17.31

Leaving money on the table


Product Price

Conv. Rate0

Model Number

Sales Price

CPC Conv. Rate

CPA

Cuisinart A $60 $.50 2.5% $20

Cuisinart B $100 $.50 2.0% $25

Cuisinart C $149 $.50 1.5% $33

Cuisinart D $179 $.50 1.0% $50

Setting a CPA based on assumed profit vs. true profit may cause you to pull the plug early and thus leave money on the table

Better way to set a CPA

1. Make no assumptions about what products a keyword will sell

2. Implement tracking that reports on products sold vs. just revenue

3. Apply true margins to each sale to determine true profit vs. using an assumed margin– There are tracking technologies that do this automatically

4. Determine the true avg. revenue and profit per order

5. Set your CPAs at a level based on #4 that allows you to earn your desired ROI or ROAS

6. Apply the lessons learned about Wal-Mart vs. Louis Vuitton to ensure you are earning the maximum profit– Leave nothing on the table


ROAS Myths


Campaigns ROAS Profit

1-2 87.5% $1000

1-3 75.0% $1500

1-4 62.5% $2000

1-5 54.0% $2500

1-6 47.5% $3000

1-7 42.1% $3500

ROAS Myths


0Ad Budget

ROAS

Ad Budget

Profit

0

Strategies for different days, times, and geographies


Day CPA Conv. Rate Profit Profit/Click

Sunday $14 3.0% $500 $1.20

Monday $15 2.0% $2,200 $.90

Tuesday $18 2.0% $1,800 $.90

Wednesday $18 1.7% $2,400 $1.00

Thursday $17 1.6% $1,500 $.75

Friday $20 1.8% $1,000 $.30

Saturday $16 2.9% $450 $1.50

Best Worst

You should also use Profit/Click to determine if you need a different strategy during different hours of the day or for different geographies

The Measure

Thank you!

6/05/08:The Measure - Are you properly crediting all of the ads in your customers Purchase Paths™?

6/26/08:The Method - Do you have a continuous improvement process for you online ad investments

* All webinars will begin at 1:30pm EST


Adam S. GoldbergCo-Founder & Chief Innovation OfficerP: 800.592.0464 ext. [email protected]

Business

The Metric: Are You Using the Right Metric to Measure Your Online Advertising?