If you’re running an online marketing campaign, there are some equations that you should understand. These equations will allow you to understand the effectiveness of your website and the marketing media that you are using to drive traffic to the site.
Now, real estate SEM, that is PPC and SEO, are both online marketing media. So are banner advertisements and email marketing. You can use these equations to examine all of these and many other media. You can even judge the effectiveness of traditional marketing media. It all boils down to the same math.
First, let’s talk about your website. When a user arrives on the site, they are anonymous. If they register to become a lead (or customer in the case of an eCommerce website) we call this a conversion. The ratio of conversions to total users is the conversation rate of your website. So:
1. Conversion rate = Leads / Total Users
For example. If your site is visited by 1000 users and 50 of them register and become leads, your conversion rate would be 5%.
Next, it’s vital to understand your cost per lead. You should be able to calculate the cost per lead generated by each marketing medium in which you are investing. You can also calculate your overall cost per lead for your entire campaign. Tracking each of these number and optimizing them is the key to superior ROI
2. Cost per lead = Amount spent / Number of Leads
Conversion rate of each add is also vital. You could be trying to spend on PPC, but the ad you wrote is failing. Also, you might be sending email marketing messages that aren’t effective. To judge the effectiveness of the ad or ad copy, you’re going to want to know the click through rate or CTR:
3. CTR = Click throughs / Impressions
Now, when you’re running a PPC campaign, your impressions are free! PPM campaigns require you to pay for the impressions. You’re not guaranteed any click-through traffic from a banner or tower PPM ad. So, you better be tracking the CTR of that ad. If it’s not performing, you can change it or stop spending altogether.
When you’re managing your PPC campaign, you need to understand your cost per click. The Adwords and Yahoo Overture systems will calculate this for you. Overall, you should be able to calculate CPC for PPC or PPM advertising.
4. Cost Per Click = Ad buy / Clicks
If you’re spending on any medium, you can simply divide the amount you spent by the number of clicks or the number of visitors that it brought to your site to understand the CPC.
Combining these equations really gives us a way to measure our ROI:
5. Cost per lead = Cost per click / Conversion Rate
If that’s a little confusing to you, scroll up and have a look at equations 1 and 4. what we really want to know is, how can we get the most leads for our ad buy. So, let’s examine this marketing equation. My goal is to minimize the cost per lead. So, to do this, I need to either raise my conversion rate or lower my cost per click. This will guide how you choose your PPM ads, your PPC bids, and even how much you want to invest into SEO.
I know this is a lot for some of you. Math isn’t everyone’s forte. If I went through this too fast for you, please drop us a comment and we’ll respond promptly.
I’ll be writing a post soon on how we improve campaign performance using these equations. Stay tuned