For some reason, internet marketing is full of TLA’s – Three Letter Acronyms. And TLA is my favorite TLA.
What The Heck is a KPI?
One of those acronyms that frequently furrows brows in the conference rooms is KPIs:
- No, not Keylime Pie Instructions
- Not Kit Kat Possession Indulgence Syndrome
Key Performance Indicators. http://en.wikipedia.org/wiki/Key_performance_indicators
If you’re an MBA, or you studied business in school, you probably HAVE heard of KPIs. If you’re self-taught in business, you might not have.
But it’s a simple concept: Your KPIs are the best metrics you can find to judge the success of any business effort.
Some examples of KPIs in Pay Per Click Advertising include:
- Cost Per Lead (CPL)
- Return on Ad Spend (ROAS)
These are the best metrics for a fixed budget. If your budget is unlimited, look instead at total profit or total number of leads. Also, the more of your niche’s clicks you try to convert, the lower your overall CR will be. ROAS might decrease, but overall profit and long term business could meet your goals.
Metrics You Shouldn’t Use as KPI’s… Usually
There are many metrics besides CPL and ROAS, but I will argue they are suboptimal KPIs. These include:
- Cost Per Click (CPC)
- Click Through Rate (CTR)
- Conversion Rate (CR)
- And even worse would be the absolute number of clicks or impressions
These are bad KPIs because they measure what’s happen in the middle of the process of the prospect finding you and converting, not at the end. I call these “midstream metrics” as opposed to more “terminal metrics” like ROAS and CPL.
However, there are suboptimal situations where these metrics are the best you can do. For example:
We once had a client whose goal was to spend the remaining $8,000 of their marketing budget within 4 days. If they didn’t spend their entire budget, their budget the next year would decrease. There was no time to set up conversion tracking or optimize ads or keywords- no goal other than spending. The KPI was how much money we could spend. We managed to spend about $7,000 in their small niche. The effort was considered a success.
There may be situations with other goals- for example if you’re trying to increase video views on a landing pages, you might measure the time spent on page and optimize for keywords and ads that lead deliver only the most engaged prospects.
But normally we’re looking for leads or sales, so CPL and ROAS are the best KPIs.
Why Do These Other Metrics Make Suboptimal KPIs?
CPC doesn’t matter. Yeah that’s meant to be provocative. What I mean is, when the client asks you “What’s the cost per click of our keywords right now?” you need to step back and ask them why they care. If the CPL or ROAS is good, CPC doesn’t matter, right? Apart from lowering bids or setting position preferences to slightly decrease CPC, or writing better ads to increase CTR and thus lower CPC, who cares? Your client may not understand that PPC hasn’t been a straight bidding auction for several years. Explain the effect of CTR and quality score on CPC, and argue for a more terminal KPI.
CTR doesn’t matter. Ok, it does- if it’s not high enough, your quality score suffers and your CPC skyrockets. BUT the highest CTR ad is not always the best. You can write ads that get more clicks but they may be unqualified. If you’re advertising health insurance and your ad says “Free Hot Babes” you may get lots of clicks, but not from your real prospects. That’s an exaggeration of course, but the point is, there’s an ad that hits the sweet spot of both CTR and CR to deliver optimal ROAS and CPL. When you go too far up on the CTR scale, there’s a point where CR diminishes so much that your overall results suffer.
CR isn’t really a PPC metric. Yes, if you send the wrong prospects to the wrong landing page, CR can suffer. Yes, you need to optimize who you’re sending where to get the best ROAS and CPL. But most real CR problems are web design problems, usability problems, and onsite copywriting problems – or even problems with the offering itself- not PPC problems. I say that after having engaged in PPC campaigns for sites I later discovered had serious conversion problems. For whatever reason, most clients still don’t want conversion optimization, nor do they understand it, and a lot of agencies and SEO and PPC folk are complicit in this misprioritization. As an analogy, if you were talking to a bricks and mortar business whose salespeople sold only one out of every 500 people, I doubt you’d think advertising was their solution. Fix the sales (conversion) problem first.
Subject All Ads and Keywords To The KPI Test
Once you’ve established the right KPI and gotten your client and team to agree this is the success measure, if you don’t use it to optimize, you can’t improve your results.
CPL is easy enough, because AdWords shows it virtually everywhere. When you’re looking at keywords and ads, CPL is there. For some reason, though, they don’t do the same with ROAS, so you have to get it from the Report Center. They call it “value/cost” in AdWords reports.
We’ve talked with clients who were working with other PPC management firms that were not aware that you could even get ROAS reports from AdWords… which means that they were choosing which ads and keywords to keep or delete without really knowing which ones were most profitable… which means their clients were missing out on profits and wasting money.
The key thing to understand here is that ROAS is comprised of:
- Average Sale Amount
If you judge ads by CTR and CR alone (all you can see in the normal AdWords interface), you miss the fact that some ads generate higher average sales than others. You must generate AdWords Keyword and Ad Reports to compare keywords and ads on an ROAS basis.
Admittedly, CPL is not a perfect KPI. If leads are your goal, it’s great, but if it’s quality leads that are more likely to lead to sales are your goal, you need to also plug in a CRM like Salesforce (the only CRM I know of that works with the AdWords API) or custom program something to tie sales back to the keywords, ads, and adgroups that generated the leads that sold.
Brian Carter is the Director of Search Engine Marketing for Fuel Interactive, an interactive marketing agency in Myrtle Beach, South Carolina. He is responsible for the SEO, PPC, SMM, and ORM programs at Fuel and its partner traditional agency Brandon Advertising & PR.