What is a Click Worth?

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As a marketer, you should know how much you spend to get each click on one of your ads. That basic cost per click (CPC) metric is at the core of digital advertising.

The lower the cost per click, the better, because it means that you’re driving more traffic to your website at a lower total advertising cost.

But if you really want to understand how your CPC relates to business success, the other thing you should work to understand is what a click is worth. Once you know what each click is worth, or a “revenue per click”, then you know how effective you are at turning those clicks into customers.

Calculating Click Value

To calculate the value in revenue dollars per click, you need to work backwards from revenue.

Let’s say a particular marketing campaign produced 1,000 sales at $100 per sale, that’s $100,000 in revenue. Then let’s say your conversion rate (defined here as the percentage of visitors that ended up buying from you) is 1.00%. That means you get 1 sale for every 100 people who visit your website. And if each sale was worth $100, then you make $100 in revenue for every 100 people who visit your website.

All that means that each click (which brings a potential customer to your website) is worth $1 to your business. This is your click value, or revenue per click.

What Can You Afford to Pay?

Once you know your click value, you know what you can afford to pay for each click.

Using the example above, where each click on your ad is worth $1, you can better judge your cost per click. If the CPC is $2, you know you’re losing $1 with each click. If this is the case, you are going to go out of business.

If the CPC is $0.50, you’re making $0.50 after marketing costs for each click. This is a more sustainable model.

Knowing what you can afford to pay for each click not only lets you judge current performance, if gives you a roadmap for future optimization of the campaign.

What Are Your Key Performance Indicators?

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How do you know if your business is doing what it is supposed to do? How do you know if you are doing well or not?

Sounds like an easy question to answer, doesn’t it. But for too many companies, it is not so black and white.

But it should be.

What Are Key Performance Indicators?

Key Performance Indicators (or KPIs) are the business-defining metrics that you will use to answer the questions posed above. And the only person that can tell you what those KPIs are, is you.

Each industry and each company might have different ones. You might have just one of you might have five. They might be focused solely on revenue or they might be focused on new customers.

Not Just Any Metric

The key is in the name – Key Performance Indicator. This is not just any metric. This is the one that gets right to the heart of success. If the metric is positive, you are doing well. If not, you have work to do.

A good test to decide whether a metric is truly a KPI is to think about a situation where said metric was moving in the right direction, and yet the company itself is moving in the wrong direction.

For example, let’s say you choose a new customer metric. Is it possible that you could be seeing strong growth in new customers, but at the same time see shrinking revenue? If so, than new customers alone is not a great KPI.

Can You Have Too Many KPIs?

Yes. Most businesses will have more than one. But it is important to limit it to as few as possible.

Why? Because the more metrics you have to look at to determine the overall health of your company, the more difficult it becomes. They don’t have to tell you what’s wrong when things are wrong, that’s what analysis is for.

A good rule of thumb is to keep it to 5 or fewer.

In Conclusion

KPIs are the metrics that you use to answer the question, “how is the business doing?” They should be readily available and easy to understand and explain.

Stop Tracking Vanity Metrics

What is a vanity metric?

We define vanity metrics as any metric that is either fun or easy to track and on the surface appears an appropriate one for the business, but upon inspection does not directly relate to company performance.

Here’s an example of what I mean:

I was working with a clothing brand who had recently launched a new ecommerce storefront. They were rightfully obsessed with tracking activity on the website. On a marketing report that was widely circulated, one of their top level metrics was a user’s time on site.

Time on site is an incredibly easy metric to track, which is why people like it. And at first blush, those in charge of marketing thought that the more time someone spent on the site, the more likely they would be to purchase.

We might all make that assumption, right? So they worked hard to make the site work better for this metric, eventually increasing the avg. time on site by 40% in just 90 days.

The problem? This did not move the needle in terms of the number of checkouts or the dollars earned from website visitors. People were spending more time on the site, but leaving empty-handed just as often.

Time on site was a vanity metric – easy to track and improve, but with little to no impact on results.

Marketers, the message is clear:

Stop tracking vanity metrics. Find the metrics that matter and track those obsessively.

Most Underrated Web Metrics

The problem with data used to be that we didn’t have enough of it. The problem with data today is that there is just way too much of it.

Of course if you know what you’re looking for, you can get it. And everything else will fall aside.

But if you don’t know what you’re looking for, you will likely fall into the familiar trap of spending too much time on things that don’t matter. Last week, we looked at the most overrated web metrics.

Today I’d like to reverse that. Let’s have a look at those metrics that are underappreciated and underused, but very useful for many businesses to measure and improve:

  1. Page Value – Google Analytics allows you to set up your ecommerce metrics, so that when someone checks out on your website, you know how much they spent. Even if they aren’t checking out, you can assign a value to any action they might take, like submitting a lead form, etc. Then you can measure how each page on your site impacts those actions and sales. Pages with the highest value contribute the most to results and pages at the lower end might not be helping you as much as you hope.
     
  2. Conversion Rate by Device – while you should be measuring everything by device, conversion rate gets right to the important stuff. Assuming you are tracking sales and other actions, you should always pay attention to the relative likelihood of conversion on different devices. As more of your traffic comes from mobile, are you putting your design and development resources in the right place?
     
  3. Attribution – I’ll grant you that this is not a metric but a category of metrics, but since Google Analytics gives you the tools you need to figure this out, I feel okay including it on this list. For marketers, this is perhaps one of the most important things to know. What traffic sources and activities add value and which do not? A full attribution analysis will tell you the path that most often leads to a successful conversion. It will rank the things you do by their relative impact on results.

Remember, now that we have access to boat loads of data doesn’t mean we’re any better off than we were before. Only those marketers or companies that pay attention to the right metrics will come out ahead.

How to Analyze Your Sales Funnel

Last week we took our first look at your sales funnel. Here are the different levels we used, from top down:

  • Unqualified Prospects
  • Awareness
  • Interest
  • Consideration
  • Intent
  • Purchase
  • Loyalty

Your company or industry might use variations on those terms, but for the most part the meanings and buckets will be the same.

So once you have a clear picture of your funnel, the next thing you need to do is begin to analyze it. How do you do that?

You start by assigning numbers to each level. How many people are in the pool of unqualified prospects? How many are in the awareness stage? And so on.

It might be difficult to get to exact numbers for each one, but you should have a sense, based on your own internal metrics and tracking.

You should know how big your target market is. If you got every single person in the market to purchase from you, how many people would that be?

You should know how many people came to your website, filled out your forms, became a sales lead, and purchased. And you should also know how many customers came back and made a repeat purchase. Adding a little bit of art to this science, you will end up with good estimates for each level on the funnel.

When you write those numbers down, you can do some quick math to see what percentage of people from each level make it down to the next level. This is your conversion rate at each stage.

For example, let’s say you have a total market size of 1000 people. That’s what you write down next to Unqualified Prospects. And you’ve judged 500 people to be in the awareness stage or beyond, meaning they have had some exposure to your brand. So you have an awareness rate of 50%.

Calculate that percentage throughout the funnel and you will have a complete look at the effectiveness of each stage of the sales process.

Tomorrow, we’ll take that analysis one step further and talk about how to use those numbers to improve your sales funnel.