How to measure the effectiveness of contextual advertising?

Any team works more efficiently and with more enthusiasm if it has specific tasks set for it, and pleasant bonuses are provided for achieving goals. The work of Internet marketers is no exception! Their activity is not an abstract thing, but the profitability of the client’s business, which can be defined and measured.

Internet marketing agency Netrocket talks about the main indicators of the effectiveness of setting up contextual advertising. Are they all necessary for the client’s business goals? How many KPIs to use and how to painlessly introduce them into your work?

The main thing for the client is tangible success

The first rule: the goal of an advertising campaign must be clearly defined even before it is launched. This is the only way the agency will be able to cope with the tasks set, and the client will be able to evaluate the effectiveness of the work.

For example, the goal: “I want more buyers on the site” is biased, it is difficult to measure it. And the goal: “I want 100 real applications” is a measurable indicator.

KPIs are those performance markers that can be measured quantitatively or qualitatively. You need to determine them before the start of the advertising campaign. And then track, comparing each subsequent indicator with the same in the previous period of time.

KPI can include any parameter that is important to measure for the client:

• the number of applications or registrations;
• the price of one application;
• profitability, etc.

ROI as the main performance indicator

The most important indicator in Internet marketing is the return on investment (ROI) or the effectiveness of an advertising campaign expressed as a percentage. Calculated according to the formula:

Let’s look at an example

We ran a UK visa campaign for a travel agency. In total, UAH 20,320 was spent on advertising. In response, we received 50 applications, of which 23 people actually applied for visas. The net profit of one issued visa is 1900 UAH.

The total ROI was ((43,700 – 20,320)/20,320)*100% = 115.05%.

That is, in fact, the client received twice as much money as he invested. This is an excellent result, since ROI above 20% is considered a good indicator in highly competitive industries.

Regularly measuring the return on investment in advertising should be done: this way the business will better understand the dynamics of the market, and seeing a positive result, they are more willing to invest in campaigns. For specialists, a positive ROI serves as a reliable marker that the work is progressing according to the planned scenario.

ROI vs ROAS: which metric to choose?

An alternative way to evaluate the effectiveness of a campaign is ROAS (Return Of Ad Spend) or advertising revenue. The indicator allows you to visually see how much income the client received by investing in contextual advertising. The ROAS formula looks like this:

If ROAS = 100%, this means that the effectiveness of advertising is zero. That is, conditionally, 1 dollar invested in advertising brought the company 1 dollar of profit. And all the promotional work was done in vain.

It is justified to focus on the ROAS indicator when evaluating the effectiveness of using a particular advertising channel or tool. ROI, on the other hand, allows you to evaluate the return on investment in general and is indispensable when planning a marketing strategy.

What other indicators should be calculated?

When evaluating the effectiveness of contextual advertising, marketers also analyze:

• average check ($);
• profit for a specific period;
• number of repeat sales (#);
• cost per client (CAC) – the amount of investment in advertising divided by the number of actually attracted buyers;
• lifetime value of the client (LTV) – what income the client has brought for the entire time of cooperation with the company;
• Target CPA – advertisers often aim to lower this in the short term. You can track this indicator in your Google AdWords profile.

All markers are tracked only in dynamics.

The effectiveness of an advertising campaign in the long run allows you to see the LTV / CAC ratio. If it turns out to be less than 3, you should work more carefully with contextual advertising settings.

Different KPIs for different sites

You can’t mindlessly apply the same metrics to all customer sites. So, for an online store, it is justified to track the average check, the number and cost of transactions, LTV. For a corporate website, the cost of one application is important, for a cloud service – the cost of attracting one client or LTV.

In order to measure the effectiveness of advertising as accurately as possible, it is important to count not only the number of purchases made, but also all, without exception, user actions on the site: calls, chat messages, applications, registration, abandoned carts.

It is necessary to understand how potential customers behave: where they click, what they are looking for, why they abandon the order process halfway through and leave the site. You can do this with:

• Google Analytics;
• Yandex.Metrics;
• paid services: for example, Kissmetrics or RJMetrics.

The sales funnel is the key to efficiency

It is most often not possible to apply all advertising tools in practice due to a limited marketing budget. Then specialists direct their efforts to encourage the user to make a purchase through the sales funnel.

It can also be used to analyze the effectiveness of an advertising campaign. A sales funnel traces a customer’s journey from the moment they become interested in a product to the moment they make a purchase.

The whole process includes several stages.

Acquaintance

Users at the very top of the funnel are most likely not yet familiar with the client’s brand. At this stage, the best way to attract attention is creative visual advertising: banners or videos.

The task of an Internet marketer is to arouse interest. You can measure the effectiveness of work at this stage by analyzing the behavior metrics on the site:

• duration of the visit;
• the number of pages viewed;
• number of failures;
• the number of ad impressions and visits to the site.

Interest

When the user gets acquainted with the company and the product, he begins to look for more information, to think, to study the offers of competitors. Most likely, search engines will be actively used, so it’s time to focus on semantics.

An aggressive strategy at this stage is more likely to scare away, remarketing and unbranded advertising will show the best result. The information coming from you should be as useful as possible: do not push, do not force, tell how your product will solve the client’s problem.

To measure the effectiveness of a campaign, use:

• conversion rates of new visitors to the site;
• average cost per action (CPA);
• ROAS of new users.

Wish

When a customer has already formed a desire to make a purchase, the task of a marketer is to push him to action. An important role at this stage is played by branded advertising (the buyer is already looking online for information about the offer of a particular company) and remarketing. It’s time to use bold CTAs, Google Shopping Shopping Ads, and offer great deals on Display Networks.

The focus is on visitors who have previously visited the site. Therefore, the success of the campaign at this stage is assessed using:

• conversion rate for repeat visitors;
• CPA;
• ROAS;
• ROI.

Purchase

Contextual advertising is also needed at the last stage of the funnel: it will help close the deal and motivate regular customers to make repeat sales. Set up remarketing on Display Networks and target by keyword only those visitors who have already visited the site. Remind shoppers of abandoned items in their cart or show similar discounted items.

What you need to measure at the sales stage:

• total conversion for old and new visitors;
• average order price;
• cost of attracting one client (САС);
• CPA;
• ROI
• LTV

How to avoid mistakes while working on KPI

As we have already mentioned, there are no universal KPIs. For example, ROI, which analysts write so much about, is completely uninformative for offline business. Such companies use contextual advertising, first of all, to form an image and introduce potential customers to the brand. And the cost of each click or one client who came from online is almost impossible to estimate in this case.

Many clients of digital agencies seek to fix performance indicators in the contract. It is reasonable. But it is worth paying attention to some points:

1. Define the first month of operation as a test period. Firstly, you will be able to establish a system of communication with the client and get from him complete information about the company’s activities. Second, check the accuracy of the data and the correct selection of KPIs.
2. Do not chase the number of KPIs: 3 will be more than enough. And, choosing from several indicators, stop at the one that reflects profitability. For example, an agency is working on the number of calls and orders from clients. The desire to meet both KPIs can lead to losses. It is better to focus on orders that bring real profit to the business.
3. Describe exactly what you mean by KPI in the contract. Practice shows that the client and the agency often do not have the same vision of the situation. Therefore, discuss in advance exactly how the marker will be calculated and what numbers will indicate that the advertising campaign is effective.
4. Adjust indicators depending on the season, strategic business goals and other factors. It is also advisable to leave a reserve of 10-15% for KPI deviation from the plan.

With a reasonable and balanced approach to calculating KPI, the effectiveness of the campaign is assessed accurately and allows you to make timely changes to the advertising strategy.

Author: Stanislav Samokha, PPC Team Lead at Netrocket.