Post on 08-May-2015
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From Clicks to ValueUnderstanding Internet Marketing Metrics
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The biggest challenge with marketing metrics is the Internet which is the Wild West.
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The Internet is the new frontier for marketing and is not yet completely figured out
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In the American West of the 1800s, there was lawlessness, bandits and ad hoc laws and approaches for survivial
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Internet marketing is much the same
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Innovation occurs rapidly and rules are continuously re-written – if written at all
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When we first started this journey, I talked about a marketing divide – that few organizations “get” data-driven marketing and majority do not
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This divide is alive and well for Internet marketing.
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Our approach to understanding Internet marketing is to start by focusing on the biggest piece of online marketing budgets and work our way forward from there.
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In November 2008, eMarketer published a survey that found Search Engine Marketing (SEM) was 45% of online marketing spending and was predicted to be 49% of spending in 2010.
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When we talk about Internet marketing metrics, there are some basics like CPC, TCR and ROA that take a bit of time to get used to, but the effort is worth the result.
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Metric – Cost Per Click (CPC)
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When we talk about Internet marketing, the discussion starts with the most basic discussion –
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Cost Per Clickvs.
Cost Per Thousand Impressions
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In 2004, on a flight from Washington, DC to Chicago, I happened to sit next to a senior partner from a big five consulting firm
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He said to me –
“I don’t get it – search is easy. What’s the big deal about Google?”
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Search engines are fairly straightforward. They create “robots” that scour the Web and tabulate all the web pages in existence and the keywords on these pages.
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We, as users, can search this very large table for specific web pages with corresponding keywords.
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The challenge in SEM is ordering the very big list of web pages with keywords you want in some way to make sense.
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In the early days of the Internet, search engines counted the number of keywords on a page to define the search order – more occurrence meant higher rankings
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So web developers just listed their keywords lots of times on a each page to influence the search order. To fight this, Yahoo! Had buildings full of people to review these results.
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But in 1996, Larry Page and Sergey Brin, had an insight that would change the world. They had the idea to rank-order search web pages on the number of links to a given web page.
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That means that the more people who link to a web page, the higher the ranking of the page.
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On September 4th, 1998 – Google was incorporated and patented as the best search engine algorithm in the world.
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The marketing business model for the Internet up until 1997 had been based upon CPM – Cost Per Thousand Impressions.
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That means that every time an advertisement appears on a web page (impression), the advertiser is charged the rate.
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1997 brought about the first CPC – Cost Per Click – model, which is now the standard for measurement in SEM.
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Cost Per ClickThe Essential Search Engine Marketing
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CPC vs. CPM is a subtle shift in global Internet marketing strategy
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In the CPM model, the person doing the search is most important and advertisers pay just to be seen by the searcher.
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In the CPC model, the company being searched is more important, and advertisers pay for a click-through that has good odds of resulting in a purchase.
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CPC is the equivalent of Demand Generation Marketing.
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The CPC for Google is very expensive – you can spend hundreds and thousands of dollars a day depending on the volume of search words and how broad your geography is.
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So how do we ensure that we are getting the biggest bang for the marketing buck in SEM?
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For this, we need a few more metrics and two essential ones that we will discuss.
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Transaction Conversion Rate (TCR)
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Internet search is broken down into two components….
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Natural Search – Organic Search&Sponsored Search
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Natural searches are the search results based in part on the number of links to a page from other sites.
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Sponsored Searches are the paid links on the top and sides of the search page.
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Our focus is on the sponsored search results since we as marketers can control these.
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When we talk about about sponsored search marketing, we need to understand that there are two more terms that we should be familiar with…
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Bid Strategy – the placement you would like to get on the page.
1 – 4 are the first 4 sponsored links5 – 6 are the following two
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Match Type – the user must type the exact words (exact match type) or the words can be typed in any order (broad match type). Match type can also include phrases (phrase match).
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In Match type, there is also negative matching which allows us to exclude specific words/phrases.
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So let’s look at some examples
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VOIP can have a broad or exact match type. For example, “VOIP calls to Turkey” is a phrase match.
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But Turkey is also part of a brand name of alcohol. So using negative match type, we can exclude the phrase “Wild Turkey” so that alcohol results would not be included.
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Transaction Conversion Rate
The percentage of customers who purchase after clicking through to your web site
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In addition to CPC, the next really useful Internet marketing metric is click-through rate (CTR)
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Click-Through Rate
The percentage of customers who click through on a link and is calculated from the number of clicks divided by the number of impressions (ad served).
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The central idea of SEM marketing is that you buy keywords and placement with specific match types.
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So to understand CTR…
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You might bid $4 for VOIP with a broad match type and a bid strategy of 1 – 4. That would mean…
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Position 1 - $4Position 2 - $3Position 3 - $2Position 4 - $1
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Looking at other bids and strategies, you would end up paying up to $4 for every click after a VOIP search.
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Now, Google works on a volume basis. If you have a high historical CTR, you can get a higher placement for a lower CPC. Google favors those who have high volumes and high probabilities for CT.
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Why?
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It maximizes Google’s revenue
Google Revenue = CPC x # of clicks
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Why is this model bad?
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It favors large brands with a history of good CTR. That means if you are new to the SEM market, with no history, it will be difficult to get higher positions at fair pricing.
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We use CTR and TCR to calculate the Take Rate
Take Rate = CTR x TCR
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The take rate is just the percentage of customers who click through times the percentage who convert to a sale once they click through.
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Return on Ad Dollars Spent (ROA)ROI for Search Engine Marketing
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To complete the SEM metrics, we need to cover the equivalent of ROI for SEM –
Return on Ad Dollars Spent (ROA)
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Return on Ad Dollars Spent
Measures the efficiency of generating net revenues from ad dollars spent when the end action is the purchase.
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ROA is calculated as follows:
ROA = Net Revenue/Cost
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Understanding the Numbers
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Optimizing Your SEM Strategy
1. Optimize the Publisher Strategy – Figure out which publisher will give you the best results for the money you are spending.
2. Optimize the Campaign Strategy – Analyze the campaigns within the publisher to determine the campaign changes needed to deliver the most value
3. Calculate the KPI Impact – Determine the impact of campaign changes on key performance indicators (KPIs) such as net revenue and ROA.