What is PPC?
PPC, also known as Pay-per-click, is an online advertising model. PPC advertising is a well-known and effective marketing approach where advertisers are required to pay a fee every time one of the ads under a PPC campaign is clicked.
Since PPC campaigns are a form of paid advertising, you need to understand PPC Data and other metrics involved under PPC management.
For successful PPC management, you need to track certain metrics so that you can analyse your PPC campaign to make it more successful and generate more revenue. There are a few formulas that you need to know so that you can find out if your PPC advertising campaign is working.
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Let us take a look at the key formulas to understand PPC campaigns better
Cost per click (CPC) and Return on Investment (ROI) are the most important formulas you will need to understand for a successful PPC campaign. Moreover, there are other formulas under these two which will help you analyse the effectiveness of your PPC campaign.
CPC or Cost per click
CPC means the cost you have to pay per click on your ad. This is one of the most fundamental calculations you need to do in order to plan and execute your PPC campaign. CPC tells you the specific cost that you have to pay for a single click on your advertisement.
Here is the formula to find out the CPC for your PPC campaign.
- Total Cost/ Total Number of Clicks
Let’s say you spent $300 on your campaign and got 200 clicks. Your cost per click would be $1.5. This is a reasonably affordable CPC because the average CPC for all services is $2.69. Each of the clicks on your CPC advertising campaign cost you $1.5.
- Cost Per Thousand Impressions or Cost per mille
CMP is not very different from CPC. The difference is that it is to analyze thousands of clicks. This metric is used to give you statistics about the visibility and action on your ads. You can see how many people saw your ad (impressions) and how many clicked on it.
To calculate the CPM, use this simple formula
(Total cost/No. of Clicks) x 1,000
Let’s say you spent $300 on your ad campaign and the ad was seen by 12,000 people. Here, your CPM would be $25 which is very close to the average of $24.74.
- Click-Through Rate or CTR
The click through rate is an important metric because it tells you exactly how your ad is working. This tells you how many people saw your ad and how many clicked on it. You can find out directly how effective your ad campaign is.
Here is the simple formula to find out the click through rate
Number of clicks/Number of times the ad is seen x 100
If your campaign cost you $300 and you got 10,000 views and 350 clicks, your click through rate will be 3.5%.
It is believed by marketing experts that if your CTR is lower than 1.16%, then you might have to take a look at ad campaign strategy. This metric is important because it tells you whether you need to improve your strategy.
- Return on Investment or ROI
Return on investment is more crucial than any other metric because it basically tells you what you are getting from your ad campaign. Knowing the cost of your generating leads and conversion is important but the most important thing is knowing how much you are selling.
You can track all campaigns and analyse their ROI. When you compare the ROI of different campaigns, you get a clear idea of what is working and what isn’t. Since the main objective of any marketing is to generate more revenue, you have to know how to calculate ethe ROI.
((Revenue Generated – Cost of the ad campaign)/Cost of the ad campaign) x 100
So, if your $300 campaign got 400 clicks that gave you $350 in sales, your ROI would be 16.66 %.
However, calculating the ROI is not always so simple. User behaviour is unpredictable so it is not easy to map each sale back to a particular campaign. Let’s say, a user stumbled upon your PPC ad and came to your website. However, they did not purchase through the website but decided to place an order through a phone call. This sale will not link directly to your PPC campaign and will affect the calculated ROI.
After such instances, your ROI will not come out accurately because the sale will not be linked to a particular PPC campaign. One possible way would be to track the phone calls after you have placed different phone numbers on different pages according to the targeted keyword. It will make the task of calculating the return on investment easier.
- Conversion Rate
The conversion rate of a PPC advertising campaign is essential to find out how many people took an action/bought a product/subscribed after clicking on your ad link. Most of the time, conversion is directly referred to as sales but any action can be considered as conversion. Conversion can mean anything that we are expecting the user to do as an action.
Even though conversion might mean different things, the formula to calculate the rate of conversion is the same.
(Number of conversions/No. of clicks) x 100
Let us assume that your PPC campaign gave you 12 conversions from 300 clicks. This brings your conversion rate to 4% which is great because the average conversion rate through ad words is about 2.7%.
Finding the conversion rate is essential for every marketeer during PPC management. This is why it is advised to carefully monitor this metric for each active campaign. Remember to take into account the conversions which happened offline but initiated online through the PPC ad.
Importance of conversion tracking in PPC economics
Conversion tracking is one of the most important parts of PPC management because it will tell you how your PPC ad campaigns are performing in the real world with real users. Afterall, we create PPC campaigns with hard work not only to get clicks, but to generate revenue and grow our business.
This is why you need to strictly monitor the conversion rate for each campaign. If you find that one of your PPC ad campaigns are not performing well, you can check the analytics information of your website to track user behaviour and to see where users are abandoning your website. This will help you tweak your website content or marketing strategy for the current or future campaigns.
- CPC or Cost per conversion
This is a more detailed version of the cost per click metric because it tells you the cost of every conversion that you got with the campaign.
This is important to know because you have to consider both the clicks and the conversions. Your PPC campaign may have generated 100 clicks but it might be the case that only 10 out of those clicks converted. You should know how much it costs to acquire one conversion.
- Cost of the campaign/Number of conversions
Let us assume your $300 campaign gave you 12 conversions which brings the conversion cost to $25. This is a good number. Knowing the CPA is crucial while planning your PPC campaign and overall marketing strategy.
Conclusion – PPC
Now you know what PPC stands for and how PPC economics work. You also know the different metrics which are essential to analyse your PPC data.
Most of the time we are told that you need just Cost per click and ROI data. However, the truth is that there are multiple categories of metrics which give you detailed information about your PPC data. You have to consider several factors while creating or modifying your PPC advertising campaign.
These metrics and formulas help you to take a look at the bigger picture. The bigger picture is necessary to help you plan your campaigns for future success. The whole point of PPC data analysis is to improve the performance of your campaigns and to generate more revenue in the future.
