Display ads and inbound marketing are not inherently incompatible. In fact, applying inbound marketing principles to your display ad strategy can help maximize your potential to reach and attract more useful and targeted leads.
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One best way to create successful display ad campaigns is proper planning and positioning. Positioning in this sense include creating a status impression, an image for your brand in the mind of your target customers. In this article, we’ll cover how to define performance metrics for your display ads, set measurable goals, and ultimately analyze successes.
Analyzing Ad Performance and Setting Goals
The following is an excerpt from Display Ads; Inbound Marketing.
The starting point for your first ad campaigns is to ensure that you understand what constitutes success for each advertising, which performance indicators to track, and how to measure your progress in real time. We will begin by examining that.
Setting Campaign Goals
Setting campaign goals should be done in relation to specific advertising campaign. It is not recommended to use the same metrics for all ad campaigns because this can create some problems including:
- Under-investment in acquiring new customers
- Over-investment in campaigns for customers who buy again and again regardless of marketing efforts
- Limited investment in mid-funnel nurturing
Now, let us look at the key performance indicators (KPIs) you’ll need to track in order to measure the success of your campaigns. Also known as the awareness stage, where prospects are looking for answers, resources, and research: Take note of the following:
New site visitors: This represents the number of new visitors who came to your site after you launched a campaign. This Key Performance Indicator helps you understand how successful your campaigns are at increasing brand recognition and overall site traffic. And of course, the higher the number of visitors to your site, the more likely to convert to actual customers.
Engagement: Engagement includes the length of time spent on your site, the number of pages viewed, the response by way of comments to posts and referral links are all good indicators of the quality of new traffic to your site. You can better understand campaign performance by comparing site engagement on a product-by-product basis. If your new visitors; bounce rate is high or their site duration is low, you may need to adjust your strategy. Bounce rate is the rate at which people leave your site after visiting a landing page.
Consideration stage. This is where prospects are evaluating whether your product or service is right for them. Marketers will want to start focusing on converting their customers into paying accounts in this stage.
Number of conversions: The total number of conversions driven by a campaign. Prospects at this stage are already aware of your brand and your content. Use retargeting to convince them to convert and adjust your campaigns based on how many of them actually do.
View-through conversions (VTCs): Conversions that resulted from customers who viewed ads but did not click. The truth is, no one likes clicking ads — but that doesn’t mean they don’t influence conversions. The ad copy, display and confidence it builds can however boost clicks on the ads. Once prospects arrive on your site, take a look at how many of them convert after being served an ad — even if they never clicked one — to get a fair and accurate picture of the effectiveness of each ad.
Attributed closed deals and new sales: The total number of deals closed from prospective customers who interacted with an advertising campaign. In addition to the total number of conversions, you should measure campaigns by the number and quality of deals they’re closing — as well as the number of new sales and overall new customers that they drive.
Cost-per-acquisition (CPA): Your overall campaign spend divided by the total number of conversions. CPA is an important KPI to keep track of across the entire funnel, as a helpful proxy for how effective your teams are at closing, retaining, and cultivating customers. Also known as the decision stage, this is the stage where prospects are deciding from whom they want to buy. As a marketer, you want to focus on closing deals that grow your customer base, while also up-selling or cross selling existing customers. KPIs at the bottom of the funnel help marketers evaluate the ultimate revenue consequences of their efforts.
Return On Investment and Life Time Value
Success measurement will begin with an analysis on the Return on investment (ROI): One way to analyze the return on investment is to look at the net profit generated by your campaign. Calculated as the difference between the total revenue the campaign generated and the total cost of running the campaign.
Lifetime value (LTV): The net profit attributed to a customer over their lifetime. There are many ways to calculate LTV, but a model that is tailored to the specifics of your sales cycle will be most effective. LTV is important because it helps marketers calculate their ROI over time.
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How to Calculate LTV
LTV = (AVERAGE MARGIN PER ORDER X REPEAT SALES FREQUENCY X AVERAGE RETENTION TIME)
Example: $600 = ($200 x 0.5 purchases per month x 6 months) – Lifetime value is $600.
In this first equation, we’re shown how to calculate the lifetime value of a customer. Here we’re looking at the average margin per order, the repeat sales frequency, and the average retention time. Let’s break this down further.
Average margin per order means the average amount of money a company brings in after processing and delivering a product. The next two metrics are meant to determine how often someone will purchase your products throughout the entire time they remain your customer. When combining these metrics, we were able to determine a LTV of $600.
How to Calculate ROI
ROI = (LTV-CPA)
LTV = $600 (calculated above)
CPA = $50 (what we pay to buy high-quality customers)
ROI = ($600-$50);
OVERALL ROI IS $550, A 400% INCREASE ON THE CPA
For this example, the situation is reversed. Here we already know the LTV, but are looking at understanding the return on investment of our advertising efforts. For this equation, we’ll look at the lifetime value minus the total cost to acquire a new customer (CPA).
Here we see that it cost $50 to acquire one single new customer and this customer had an LTV of $600 (taken from above). Once we subtract the CPA, we reveal an ROI that is very well higher. Quite an improvement. You may want to check out the percentage gain on your investment.
This metrics will give you a good idea of the LTV of your average customer, and will determine how much you invest knowing the expected benefits. You can actually use this metric to determine how much to spend to get customers to convert, you can get a more accurate sense of what your ROI is for your ad campaigns.
Why Do KPIs Matter?
The simple answer to this is Attribution. Attribution is critical because it allows marketers to evaluate what ads or marketing efforts are driving results and measure the impact of their advertising. Yearly trends continue to show that marketers (and their bosses) are placing more and more importance on marketing analytics and attribution.
Many marketers mistakenly continue to exclusively track ad clicks to measure their campaigns. This is a good metric but leaves out those who still convert despite not clicking the ad immediately or at all and those who will never click an ad yet they will convert later. This makes ad copy design paramount for overall success of your advertising campaign.
Why Click Doesn’t Really Tell the Whole Story
A small portion of people click on ads: Only 16% of users click on ads, and half of those — 8% — account for 85% of all clicks on display ads. This means that this pool of what the industry calls “natural born clickers” is the only audience you track when you focus just on clicks as a measurement of your ad success rate.
Marketers need to be able to measure users who would buy without advertising: Ideally, advertising should influence users to consider purchasing a product or service they wouldn’t otherwise have been exposed to. They may buy by clicking the ad and many will buy without clicking the ad while some will buy later even when the ad has stopped running.
The Alternative is an attribution blended attribution models, which allows marketers to take into account both views and clicks when measuring the success of their campaigns. This metric retains the simplicity and immediacy of click-based attribution while accounting for the cumulative effect of views. More importantly, it takes into account what advertisers have always known: that viewing ads influences consumer behavior. So, more than spending on pushing ads before potential customers and a compelling call to action, ads that convey confidence, professionalism and a memorable can be well rewarding especially with the large portion of buyers who will not click an ad yet will convert into valuable customers.
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