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How & Why to Measure PPC Account Health

will-lin
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ideal-cpaWe’ve all been there: you take over an account. You know it needs work. You know you can improve it. And your client is chomping at the bit to see some lift from your expertise.

For some accounts, it’s absolutely reasonable to tell your clients to expect their cost per acquisition (CPA) to decrease by 50 percent and volume to increase by 100 percent. For others, when the account is in decent shape, the client can expect more incremental gains. But how do you establish where on the spectrum your new accounts fall?

Account Health Knowledge is Power

The goal of a good account audit is to determine how much improvement you can target.

In more concrete terms, supposing a client's search account runs on CPA metrics, and his current monthly conversions are X, at a Y CPA, how much can you improve on X and Y? This is very meaningful stuff for clients and for you; it tells you where to spend your time and allows you to be very explicit in setting clear, healthy expectations from the start.

To assign a score to your accounts, you can use the following formula (let’s call it the Account Score Ratio):

Current CPA / Ideal CPA.

One quick note before we dive in: remember to exclude brand traffic from this calculation. And away we go.

How to Find an Account’s “Ideal CPA”

Current CPA is easy to get. But what is the "Ideal CPA"?

To answer the question, we need to know this: what's the most important thing in a search campaign?

A lot of people say landing pages – and yes, landing pages are important, but they take time to design, iterate, refine, etc. So yes, they’re important, but they’re a little remote.

Then, how about ad copy? Let's be honest: optimized ad copy provides incremental gains, not big gains.

What about negative keywords? Yes, lazy and wasteful accounts can get some efficiency by negs, but again, the gains tend to be incremental.

The most important thing in a search campaign is actually queries.

Note that I don't use the word "keywords.” Keywords are what we think people will type into the search box; queries are what they actually type (and then Google matches them to our keywords).

This isn't an academic distinction; there is a huge difference between queries and keywords. For example, an over-built account can have tens of thousands to millions of keywords, but looking at the query (a.k.a Search Terms) report, you’ll see the queries that got conversions are never in the tens of thousands. Queries that get conversions are what matters! Converting queries are a very small percentage of all the queries triggered by keywords, and of all keywords we imagined people will search for.

Suppose we are SEM gods who can predict every query that will receive a conversion, and we only spend money on those queries, and we don't spend money on all other queries that don't convert. What would that CPA be? That’s the Ideal CPA.

We can actually get this Ideal CPA pretty easily:

  • Go to the Keywords tab in the AdWords web interface, 
  • Click Details to See Search Terms for All keywords, 
  • Do a filter by Conversions > 0 – remembering to exclude brand terms (we can do it by filtering brand names out of Ad Group/Campaign names).
  • Scroll to the bottom and look at the filtered row.

Now you have the Ideal CPA (i.e., the CPA we can get if we can predict every query with a conversion and only spend money on those queries.

An aside: We can simply build our campaigns by exact-matching these proven queries and adding nothing else. Right? Well, it would get us good CPA, but we’d miss every drop of new-growth opportunity. Use whatever system you’ve got in place to keep your eye out for new winners.

Because we know the Ideal CPA is as efficient as we can possibly get, we use it as a yardstick to measure how efficient the account currently is. Let's look at the formula again (remember to exclude brand traffic):

Account Score Ratio = Current CPA / Ideal CPA

We’re ready to calculate.

What the Account Score Ratio Tells us

The numbers can be startling. Some accounts might have Account Score Ratios (ASRs) of 10 or even worse. So what does that mean?

If you have a 10 ASR, it means that for every $10 you spend on Search, only $1 gets a conversion. The other $9 is just wasted on queries that never get conversions. So, you can either make some account edits to save $9 or $7 or $5 ... or you can aggressively move the $9 to spend all on the queries that make conversions and therefore get more volume out of those queries.

Suppose the Ideal CPA is $20, and the Current CPA is $200. The spread between Current CPA and Ideal CPA represents the opportunities. And it doesn't require landing page change. It's just SEM, pure and simple, and it's mathematical certainty.

Most clients have an ASR ratio between 4 and 7. Those are all decent accounts – by that I mean, no blatant mistakes or carelessness – but a ratio between 4 and 7 means plenty of room for improvement. In concrete terms, we can always cut CPA by 30-50 percent, and increase volume by 30-50 percent.

A tough but achievable goal is to keep your ASRs (non-brand, remember) below 2. It's always easy to have a good ASR when you are not spending or spending very little. The challenge is to spend a lot and still maintain a tight ratio. Get the ASR down to the 1.5 range, and it means almost all marketing dollars are getting conversions and you’ve squeezed out every possible drop of fat.

Check a few of your accounts. How are you doing? Where do you need to spend more time? The results may surprise you – and you’ll either create your own marching orders or have a rosy picture to paint for your clients.


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