Buying Traffic or Generating Sales?

- May 23, 2008

Marketers should always be focused on ROI and tracking whether each bit of spending is driving sales, or not. In my experience, I have come across companies that claim to be focused on ROI, but they are calculating it in the wrong way, which is just as bad as not tracking it at all.

Advertising on the web brought with it the now popular metric of Click-Thru Ratio, CTR. This is the ratio of impressions versus actual clicks which took off with the rise of banner advertising. This metric is also monitored in paid search campaigns and provides insight into campaigns, but should not be the metric used to gauge the performance of a campaign unless you are solely focused on driving traffic to your site.

Most sites generate revenue from sales, not serving ads to visitors, so more traffic does not automatically equal more revenue. Traffic has to convert and therefore conversions, cost per conversion and average sale are the metrics that matter most.

These should not only be tracked at the campaign level, but should be tracked at the ad group, ad and keyword levels. I have seen many campaigns where some keywords have low CTRs but higher conversions and average sales than other keywords in the campaign with much higher CTRs.

Managing a campaign by the CTR of specific ads and/or keywords misses the true goal of marketing — driving sales. A campaign with low CTRs but high sales is better than one with high CTRs and poor sales. Some campaign managers routinely delete “underperforming keywords” but the definition of underperforming is too often limited to the CTR instead of the level of conversions/sales, cost per conversions and average sale total.

Before you delete another low-CTR keyword, research those 3 metrics and determine the true performance. Separately, you should never delete underperforming keywords until you test different landing pages, because you might be blaming the wrong part of the chain for the outcome, but that is for another post.

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