24 main parameters of PPC systems and what they mean - Profit Hunter

As a rule, we focus on more advanced marketing tactics and a deeper analysis of the advertising business; however, it is sometimes useful to take a step back and look at the basics. When discussing a paid search, we often use abbreviations and terms that are not understood by everyone; This article is intended to clarify the situation - it is a kind of "primer" on the various parameters used in this area.

Despite the fact that the jargon of paid search is often intertwined with the terminology of other areas of marketing and business in general, Pay has Per Click (pay per click) and some concepts that are specific to it. Beginners and people who are weakly associated with these areas may well find that almost all the terms mentioned in this article are unfamiliar to them. And it is possible that even those who are well familiar with these parameters, find here a couple of tips that will pay for the time spent reading.

So let's get started ...

Traffic parameters

Impression (display) - the impression is counted when the ad is displayed on the search results page (SERP). The impression data is provided by the search engine through its network interface or through API (application programming interface) reports.

Click (click) - everything is simple here: a click is counted when a user clicks on an ad and visits the page to which the link leads. The data on clicks, again, can be obtained from the search engine itself, but with the same success, analyzers are used for this, and often they provide more detailed information with more detailed information about the user.

CTR (Click-through Rate) is the ratio of the number of clicks on an ad to the number of its hits. CTR largely depends on the position of the ad on the search results page and the recognition of the company's name, but the intriguing advertising text is also a considerable plus. A high CTR can sometimes create a deceptive impression that things are going well, so be careful when analyzing.

Average Position (middle position) is the average position where the ad appears on the search results page, where the top position is 1. Due to the very nature of the auction and the fact that the results Search is always very personalized, this parameter is quite difficult to interpret in isolation from others. For example, the average position of an ad with ten impressions in position 1 and one impression in position 10 will be equal to 1.8. In addition, it is possible that raising the bid may even lead to a decrease in the average position of the ad. Google recently added a new data segmentation feature, which adds a bit more clarity to this question.

CPC (Cost Per Click, cost per click) is the average cost of a click on an ad for an advertiser. Not to be confused with the advertiser's bid or maximum CPC, since the real CPC is usually lower than the bid due to the nature of the auction.

Marginal / Incremental CPC (marginal CPC and CPC increment cost) - since CPC is an average, and advertising costs are characterized by diminishing returns, the advertiser may find that only a marginally lower result is achieved at the cost of significantly lower advertising costs. After examining the marginal CPC according to the data obtained using tools like Google's Bid Simulator, you can more effectively redistribute the costs of different keywords from your set.

CPM (Cost Per Mille) is the cost per thousand impressions of the ad. Although this parameter is usually not associated with paid search, some advertisers may want to compare their CPM (cost per thousand impressions) and PPC (cost-per-click) ratios with those promotion channels where the cost of advertising is determined by and not pay-per-click.

Impression Share (IS, percentage of impressions) is the ratio of the number of real ad impressions to the total number of possible impressions. A limited budget and a low ad position lower the percentage of impressions, but achieving a high IS should not become an end in itself. If you have high-quality ads, the budget is not a limiting factor, and you bet as much as you can afford, then IS characterizes the level of competition for the keywords you use, rather than anything else.

Conversion options

Revenue / Sales (sales / revenue) - interchangeable terms, can mean the value of orders made, taking into account discounts and shipping / loading costs, and without them.

Margin (margin) or Gross Profit (gross margin) - expressed in dollars and calculated as (profit minus cost of goods sold).A paid search program based on margins can have a more direct impact on profitability if it takes into account what percentage of gross margins make up the various products and their lines.

Leads (actions, leads) - some advertisers see the goal of an advertising campaign in that representatives of the target audience or enter into some kind of long-term agreement with them (buying insurance, creating a bank account, etc. .), or made a purchase sometime in the future (business-to-business transactions, premium products, etc.). In this case, the main measure of conversion is not an order, but an action or lead (Lead): subscribe to a newsletter, submit an application, request additional information, etc.

Conversion Rate (CR, percent conversion) - the ratio of the number of orders (Orders) or leads to the number of clicks on an ad. The cumulative conversion percentage is highly dependent on the competitiveness of the product offer and the advertiser's ability to correctly distribute the rates between the keywords. The percentage of conversion does not vary greatly depending on the position of the ad.

Revenue Per Click (RPC, revenue per click) or Sales Per Click (SPC, sales per click) is the averaged revenue generated by one click. For an advertiser who wants to achieve a certain level of revenue, to accurately predict the RPC is to determine which CPC you can afford and which bets to make.

Revenue Per Impression (RPI, revenue per impression) is a very useful parameter when testing advertising. RPI explains why the two types of advertising text can differ both in CTR and in RPC.

Average Order Value (AOV, Average Order Value) is the ratio of revenue to orders. It is useful for determining ways of promotion to encourage customers to spend more than the average, and as a contrast to the percentage of conversion (visitors can make purchases of the same amount, but spend more or less at a time at one time or another or after a long interaction with the site).

Performance Parameters

Ad Costs to Sales (A / S) is the ratio of advertising expenses to sales. Used by many paid search programs to determine target performance. Often used instead of more direct indicators of profitability, but it may be useful to those who wish to give priority to maximum gross revenue, and not net profit.

Return on Ad Spend (ROAS, profit from ad placement) - in most cases, this is simply the reciprocal of A / S, that is, the ratio of revenue to advertising costs.

Return on Investment (ROI, return on investment) - in the field of paid search ROI is often synonymous with ROAS, but it is best to link it as closely as possible to the calculation of profit. As a rule, ROI is calculated as follows: (gross profit - advertising expenses - variable costs) / advertising expenses

Ad Costs to Margin (A / M, ratio of advertising expenses to margin) is another widely used parameter of target efficiency, which makes it possible to more directly evaluate profitability than A / S.

Cost Per Lead / Order (CPL / CPO, price per lead / order) - leads may, in the end, never lead to any result for months or even years so that advertisers who rely on them need a convenient parameter to measure performance. If the advertiser can determine the value of the lead, he can put in front of him a target CPL that would correspond to the desired level of profitability.

Other

Quality Score (QS, Quality Score) is the ranking assigned by the search engine to the ad based on its opinion on its quality. Used along with the bid amount to determine where the ad will be on the search results page. Despite the fact that all the details of the calculation of the quality indicator remain unknown, for the most part its calculation is based on the dynamics of CTR and other relevance factors. You can see QS keywords through the search engine interface or API.

Cost of Goods Sold (COGS, cost price) - indicates how much the product sold to the advertiser cost. Used to calculate the margin; does not include variable labor costs, distribution and so on.

Revenue Per Search (RPS) - how much a search engine earns on each search, reflects how well it is monetizes your traffic. A high RPS does not necessarily benefit the advertiser, but a relatively low RPS, as seen by the Search Alliance, hints that the full potential of traffic remains unused.

Lifetime Value (LTV, lifetime customer value) - estimates the total value of the customer, predicting the income that will be received from it in the future.By including LTV in the calculation of efficiency, the advertiser can bet more aggressively and reach a larger target audience.

Here, in principle, that's all. I hope this article will be useful for both new users to use paid search, and knowledgeable people who want to refresh their memory. Did we miss anything?

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