However, it’s not enough to simply spend on advertising. A wise seller would aim to maximize ad spending. To do that, they must understand these critical ad metrics and how to use them to improve their PPC campaigns.
Better product visibility Higher sales and revenues Improved brand trust and credibility Highly targeted audience reach Access to new and more diverse clients
Increased sales and revenues are the best gauges to know if your ads are really working. But they are not the only ones. There are a lot of data points that will tell you if your ads are resonating with your customers or not. Here are other critical metrics you need to know:
Click-through rate (CTR) Cost per click (CPC) Conversion rate (CVR) Average daily conversions Advertising Cost of Sale (ACOS)
Understanding these metrics will help you evaluate your campaign’s performance and ensure those advertising dollars are well-spent.
Click-through-Rate (CTR)
Click-through rate is the most integral component of any PPC campaign. It tells you the ratio of the number of clicks versus the number of impressions your ads receive. It is crucial in letting you know whether your ads work in attracting customers to click on them.
For Sponsored Products, it’s about 0.42%. For Sponsored Brands, it’s about 0.38%. For Display Ads, it reaches approximately 1%.
Your CTR must be equivalent or above that. If it’s lower, you should consider tweaking some parts of your ads to make them more compelling or optimizing your keyword targeting to find the right customers.
Ways to Improve CTR
To improve your CTR, you should do the following:
Review if the following parts of your ads are compelling:
Ad Headline - Is it descriptive, accurate, creative, and unique? Image - Is it a high-quality, realistic image? Reviews - Is the product highly reviewed with a good review score? Price - Is the price competitive?
Check if your ads are using the right keywords which could be:
Broad keywords Exact keywords Phrase keywords Negative keywords
Cost-per-Click (CPC)
Cost per click (CPC) refers to the actual ad cost you pay for every click the ad receives. This is calculated as the total ad spend divided by the number of clicks. Advertisers bid for clicks and your goal is to outbid your competition to get the best position and visibility to reach your customers. However, lower CPC means higher ROI, so your goal is to optimize your campaigns to achieve the lowest CPCs. You can do this by running ads that accurately target your customers but do not attract high competition.
Ways to Lower CPC
Here are quick ways to lower your CPC:
Create relevant ads for your best SKUs. Utilize negative keywords. Experiment with keyword variations. Use long-tail keywords. Always check your campaign settings. If you’re aiming to lower your CPCs, go for Fixed Bid or Bid Down settings.
Conversion Rate (CVR) and Average Daily Conversions
A conversion happens when the customer clicks on the ad then makes a purchase. Conversion rate measures this event. It’s calculated as the ratio of the number of conversions (purchases) versus the number of ad clicks. Conversion does not measure units sold since one conversion can be equivalent to multiple units sold. This means the potential for higher sales for every conversion is huge.
Factors Affecting Conversion Rate
To optimize conversion rates, you need to understand the following factors affecting them: Keywords used Always conduct comprehensive keyword research and make sure you’re using the right keywords for your products. While “Christmas Tree” may be a good keyword, if you’re selling “Christmas garlands” and use this keyword just to increase impressions and clicks, people will quickly leave your listing because they won’t find what they’re looking for. Number and quality of reviews Customers love social proof and having a lot of high-quality reviews on your listing will affirm their choices. Your products’ reviews should be relevant and not sound forced. Competitive pricing High-quality product images Product images are the primary way customers are attracted to your listing. Use professionally shot product photos that will stand out in a sea of similar search results. In highly competitive listings, product titles and descriptions may be similar, and the only way to stand out is with an eye-catching photo. Just make sure the photo is still representative of the actual item being sold.
Detailed product descriptions
Lastly, don’t forget the product descriptions. You need to create accurate and keyword rich product descriptions. These are important for customers to understand what your product is all about and what value-added services you can offer to stand out from the competition. Also, having an optimized product description will help in your organic rankings.
Ways to increase conversion rate
However, conversion is not the only important metric. It’s dangerous to be fixated on conversion without understanding the other metrics, especially those that relate to profitability.
Advertising Cost of Sales (ACOS)
Advertising Cost of Sales (ACOS) tells you how much ad spend you incur for every $1 revenue earned. This is a great metric to gauge how profitable your campaigns are. To calculate this, simply divide your total ad spend by the number of generated sales.
How to set the right ACOS target
Ideally, you’d want the lowest ad spend for the maximum revenues. This means finding the right target for your ACOS. To do this, you need to:
Determine your target profit. Understand your break-even point.
What you spend for advertising should be less than your ideal profit margin. Your profit margin is the amount left after you’ve paid for all the general costs like shipping, salaries, and fees. You’d be better informed in deciding the right amount of ad spending when you know the other costs your business incurs. Sometimes, especially when you’re introducing a product, you may have to spend more on advertising. You need to determine the break-even ACOS. This is the maximum amount you can spend on advertising without sacrificing product costs. You don’t suffer a net loss but also don’t enjoy a net gain.
Final Thoughts
When considering these metrics, it is important to strike a balance between impressions, clicks, and conversions and ensure that your overall business remains profitable despite spending on ads. Ultimately, the goal should be to depend more on organic traffic than paid traffic as the former is a more sustainable way of running an eCommerce business.
