Internet Metrics

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From Clicks to ValueUnderstanding Internet Marketing Metrics


The biggest challenge with marketing metrics is the Internet which is the Wild West.


The Internet is the new frontier for marketing and is not yet completely figured out


In the American West of the 1800s, there was lawlessness, bandits and ad hoc laws and approaches for survivial


Internet marketing is much the same


Innovation occurs rapidly and rules are continuously re-written – if written at all


When we first started this journey, I talked about a marketing divide – that few organizations “get” data-driven marketing and majority do not


This divide is alive and well for Internet marketing.


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.


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.


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.


Metric – Cost Per Click (CPC)


When we talk about Internet marketing, the discussion starts with the most basic discussion –


Cost Per Clickvs.

Cost Per Thousand Impressions


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


He said to me –

“I don’t get it – search is easy. What’s the big deal about Google?”


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.


We, as users, can search this very large table for specific web pages with corresponding keywords.


The challenge in SEM is ordering the very big list of web pages with keywords you want in some way to make sense.


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


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.


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.


That means that the more people who link to a web page, the higher the ranking of the page.


On September 4th, 1998 – Google was incorporated and patented as the best search engine algorithm in the world.


The marketing business model for the Internet up until 1997 had been based upon CPM – Cost Per Thousand Impressions.


That means that every time an advertisement appears on a web page (impression), the advertiser is charged the rate.


1997 brought about the first CPC – Cost Per Click – model, which is now the standard for measurement in SEM.


Cost Per ClickThe Essential Search Engine Marketing


CPC vs. CPM is a subtle shift in global Internet marketing strategy


In the CPM model, the person doing the search is most important and advertisers pay just to be seen by the searcher.


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.


CPC is the equivalent of Demand Generation Marketing.


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.


So how do we ensure that we are getting the biggest bang for the marketing buck in SEM?


For this, we need a few more metrics and two essential ones that we will discuss.


Transaction Conversion Rate (TCR)


Internet search is broken down into two components….


Natural Search – Organic Search&Sponsored Search


Natural searches are the search results based in part on the number of links to a page from other sites.


Sponsored Searches are the paid links on the top and sides of the search page.


Our focus is on the sponsored search results since we as marketers can control these.


When we talk about about sponsored search marketing, we need to understand that there are two more terms that we should be familiar with…


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


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).


In Match type, there is also negative matching which allows us to exclude specific words/phrases.


So let’s look at some examples


VOIP can have a broad or exact match type. For example, “VOIP calls to Turkey” is a phrase match.


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.


Transaction Conversion Rate

The percentage of customers who purchase after clicking through to your web site


In addition to CPC, the next really useful Internet marketing metric is click-through rate (CTR)


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).


The central idea of SEM marketing is that you buy keywords and placement with specific match types.


So to understand CTR…


You might bid $4 for VOIP with a broad match type and a bid strategy of 1 – 4. That would mean…


Position 1 - $4Position 2 - $3Position 3 - $2Position 4 - $1


Looking at other bids and strategies, you would end up paying up to $4 for every click after a VOIP search.


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.


Why?


It maximizes Google’s revenue

Google Revenue = CPC x # of clicks


Why is this model bad?


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.


We use CTR and TCR to calculate the Take Rate

Take Rate = CTR x TCR


The take rate is just the percentage of customers who click through times the percentage who convert to a sale once they click through.


Return on Ad Dollars Spent (ROA)ROI for Search Engine Marketing


To complete the SEM metrics, we need to cover the equivalent of ROI for SEM –

Return on Ad Dollars Spent (ROA)


Return on Ad Dollars Spent

Measures the efficiency of generating net revenues from ad dollars spent when the end action is the purchase.


ROA is calculated as follows:

ROA = Net Revenue/Cost


Understanding the Numbers


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.

Internet Metrics

Marketing

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