Measuring Success — How Deep Do You Go?

When starting a paid search campaign for any client or promotion, one of the first questions that comes up is, “How are you defining success of this campaign?”

How you answer this question has significant impact to the way your campaigns will be set up and run. This includes keyword selection, bidding decisions, engine selection, and many more important factors.

Paid search advertisers should dive deeper into measuring success than just a typical ROI goal (revenue/ad spend). This goal undervalues the true measure of what drives a successful business — profit.

A smart client of ours once summed this point up to me by saying, “You don’t put revenue in the bank. You put profit in the bank.”

So, why is measuring to profit so important, and how can it impact your paid search campaigns? While $1 in revenue is the same regardless of the product sold, it doesn’t always equal the same for profit based on the margin.

For example, a T-shirt and a pair of pants each cost $10, but the cost to make the T-shirt is much less than the pair of pants, and therefore is more profitable for the company. If you made your bidding decisions based on revenue, then you wouldn’t care if you sold a T-shirt or the pants.

However, if you look at profit, you would value the sale of the T-shirt by four times. Knowing this information would change your allowable CPC for each given keyword.

Keyword T-Shirt Pants
Ad Spend $5 $5
Revenue $10 $10
COGS $2 $8
Profit $8 $2
Revenue ROI
(Revenue/Ad Spend)
200% 200%
Profit ROI
(Profit/Ad Spend)
160% 40%

Evaluating the success of your PPC campaigns doesn’t stop at high-level results for just paid search. You measure down to the keyword level to ensure the most granular level of data. This is the same concept, only pushing the measurement deeper down the sales funnel.

The difficulty becomes the ability to get this data. Companies often struggle with two issues:

  1. Having product-level margin information available. This data is often owned by groups that don’t frequently talk to marketing.
  2. Their Web analytics package doesn’t support profit margin. While this can make the work more manual, it shouldn’t be a deal-breaker. This is when having category/product-level ROI (revenue/ad spend) goals should be implemented, and some set-up offline calculations can be done. Someone from the finance department should be able to help marketing understand the different value that each product/category drives to the business. This information should set the ROI targets for each product/category.

These two issues can be a tough hurdle for many companies, and can add some initial set-up time, but showing example data and business impact is often the best way to get internal buy-in and help in making actionable decisions that will drive improved results for your business.

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