We typically focus on more advanced marketing tactics and deeper analysis of the advertising business, but every now and then it's nice to take a step back and address more fundamental topics. In our discussions of paid search, we're often quick to throw around abbreviations and terminology that may not be instantly discernible to all audiences, so we thought we'd offer a primer on paid search metrics.
While much of the jargon of paid search overlaps with that of other marketing channels and business in general, there are a few items here that are PPC-specific. For those who are new to or have just a casual connection to any of these fields, there may be only a few items here that are familiar. To those who are well acquainted with these metrics, hopefully we can offer a few tips here and there that will make this worth your while.
Without further ado...
Traffic Metrics:
Impression - An impression occurs when your paid search ad appears on the search engine results page (SERP). Impression data is provided by the engines via their online interface or through API reports.
Click - An easy one: clicks are when the user clicks on your ad and visits your landing page. Again, this data is provided by the engines, but it can also be determined by on-site analytics, often with greater detail about the user.
Click-through Rate (CTR) - CTR is the ratio of the number of clicks your ad has to the number of impressions it received (Clicks/Impressions). Click-through rate is strongly influenced by the position of your ad on the SERP and your company's name recognition, but compelling ad copy also provides a boost. High level CTR trends can be deceiving so take caution in your analysis.
Average Position - This is the average position where your ad appeared on the SERP with the top position on the page being 1. Because of the nature of the auction and increasingly personalized results pages, it can be difficult to interpret the average position metric in isolation. For example, an ad with 10 impressions in position 1 and 1 impression in position 10 will have an average position of 1.8. Also, it's possible that increasing an ad's bid will end up lowering its average position. Google has recently provided a new data segmentation option that provides a bit more insight on ad position.
Cost Per Click (CPC) - CPC is the average amount the advertiser pays for a click. This should be distinguished from the advertiser's bid or max CPC, as actual CPCs will typically come in lower than the bid due to the nature of the PPC ad auction.
Marginal/Incremental Cost Per Click - Since CPC is just an average and there are diminishing returns to additional ad spend, the advertiser may find they are spending a great deal more per click than their average CPC for their last dollars spent. Viewing this marginal CPC in data from a tool like Google's Bid Simulator can reveal opportunities to shift spend across one's keyword portfolio.
Cost Per Mille (CPM) - CPM is the cost per thousand ad impressions. Though not commonly associated with paid search, some advertisers may wish to compare their effective CPM for PPC to other channels where pricing is determined by impressions rather than click costs.
Impression Share (IS) - Impression Share is the ratio of the impressions your ad received to the number of possible impressions it could have received. Budget restrictions and low ad rank will decrease your impression share, but having a high IS shouldn't be the goal in and of itself. If your ads are of high quality, budget is not restricting their display and you are bidding what you can afford, IS speaks more to the level of competition you face than anything else.
Conversion Metrics:
Revenue/Sales - Used interchangeably, the terms revenue and sales can apply to the value of orders placed with or without discounts and shipping & handling included.
Margin - Margin, or Gross Profit, is expressed in dollar terms and is defined as (Revenue - Cost of Goods Sold). Running a paid search program based on Margin figures can provide a more direct impact on profitability by taking into account variable margin percentages across products and product lines.
Leads - For some advertisers, the goal of an advertising campaign is to reach qualified individuals to pursue for a long-term commitment (insurance, bank account, etc.) or purchase farther down the road (B2B, high ticket items). In these cases, rather than Orders, the key conversion measure is a Lead. This can include an email signup, application completion or request for information among others.
Conversion Rate (CR) - CR is the ratio of the number of Orders or Leads to the number of ad Clicks. Aggregate conversion rates in paid search depend heavily on the competitiveness of your product offering as well as your ability to determine value across your keyword portfolio. Conversion rates do not vary significantly by ad position.
Revenue Per Click (RPC) - Or Sales Per Click (SPC), RPC is the average amount of revenue generated per click. For advertisers looking to hit a revenue-based efficiency goal, predicting RPC accurately will determine what CPCs can be afforded and how to set bids.
Revenue Per Impression (RPI) - A useful measure for copy tests, Revenue Per Impression accounts for both the CTR and RPC differences one might see between two copy versions.
Average Order Value (AOV) - AOV is Revenue/Orders and it can be useful for determining how promotions should be set up to incentivize shoppers to spend more than average and as a contrast to conversion rates in analyses (Are shoppers purchasing at the same rates, but spending more/less per order over time/seasonally?)
Efficiency Metrics:
Ad Costs to Sales (A/S) - Ad Costs/Sales is a ratio used as an efficiency target for many paid search programs. It is often used as a proxy for more direct measures of profitability, but it can be useful for those seeking to maximize top-line revenue over bottom line considerations.
Return on Ad Spend (ROAS) - Most commonly, ROAS is simply the inverse of A/S or Revenue/Ad Costs.
Return on Investment (ROI) - In the paid search world, ROI is frequently used synonymously with ROAS, but it is best tied as directly as possible with profit measures. A typical ROI calculation is: (Gross Margin - Ad Costs - Variable Expense)/Ad Costs
Ad Costs to Margin (A/M) - The Ad Costs/Margin ratio is another common efficiency target metric that provides a more direct view of profitability than A/S.
Cost Per Lead/Order (CPL/CPO) - Leads may not ultimately pay off for months or even years, so Lead generating advertisers need an efficiency metric they can steer by today. If the advertiser can estimate the value of a Lead they can aim for a Cost/Lead target that meets their desired profitability goals.
Other Considerations:
Quality Score (QS) - QS is a ranking the engines assign to your ad based on their view of its quality. It is used along with your bid to determine where your ad will rank on the SERP. Though all details of the QS assessment are not known, it is largely a function of historical CTR among other relevancy factors. A view of QS is available for keywords via the engine interfaces and API.
Cost of Goods Sold (COGS) - COGS is the direct cost to the advertiser for the products they are selling. Used for determining Margin, it does not include variable costs for labor, distribution, etc.
Revenue Per Search (RPS) - RPS is the amount the engines make for each search and reflects how well they are monetizing their traffic. A higher RPS is not necessarily beneficial to advertisers, but a relatively low RPS, as seen since the Search Alliance, suggests valuable traffic is not being fully reached.
Lifetime Value (LTV) - Lifetime Value estimates the full value of a customer by forecasting future revenues they will generate. Incorporating LTV into efficiency calculations allows the advertiser to be more aggressive with their bidding and reach a greater audience.
Well, there you have it. I hope this is helpful for those new to paid search or those that just need a refresher. Did we miss any important ones or personal favorites?
