Cost per Click shows the average amount you pay per click on an ad. When you run a campaign in your accounts, you'll see a projected CPC, which will be different from the real cost per click. To find out the real CPC, you need to divide the total cost of contextual advertising by the number of clicks.
For each key request you have to set maximal cost per click. When a user enters a request, ads "compete" with each other. The one with the highest price and best quality ads will get the most prominent position and most traffic. Quality of ads is a separate metric that's calculated in real time. It's affected by many factors, including how relevant your ads are to the site
How to use: Our goal is to find a balanced maximum CPC value. It should be high enough to compete with other ads, but not so big that the campaign becomes unprofitable
Minuses: Calculating the maximum CPC value can be difficult. If the catalog is large, you either have to spend a lot of time on calculating this indicator for each position separately, or accept that some of the traffic will be bought a little more expensive than you want. CPC is more suitable for firms with a small list of products or services
Cost per click or CPC
From the examples above you can understand that a careful attitude to the indicators shows the possible cause of the problem, and this simplifies the management of contextual advertising and accelerates the process of achieving the goals of the business owner
Sincere bid is the amount you will benefit from paying per click. It provides maximum traffic for a given price
There are 3 ways to calculate it:
Sincere bid
With the help of the share of advertising expenditures
Minuses: Sincere rate is not suitable for all types of business. It is worth working with these indicators only when the amount of traffic is large (>10,000 clicks) and a small number of products. If there are a lot of positions, spending time and resources on calculation of the sincere rate is simply unprofitable.
With the help of the advertising revenue indicator - ROI
CPA or cost per action shows the cost per 1 target action. When that action is considered a request or order, the metric is also called CPL (cost per lead) and CPO (cost per action).
To find CPA, divide your total cost per lead by your number of targeted actions. For example, if you bought traffic for 10 000 $ and got 1000 applications, the CPA will be equal to 10 $
CPA - basic KPI of contextual advertising, the calculation of which can be customized with settings of Google Analytics both for Google advertising
How to use: You have to set a CPA -the amount you re willing to pay to achieve the goal of contextual advertising. Usually it is counted on the basis of margin. If the result is less than this number, with advertising everything is fine. If the action costs you more, you need to fix the process -make sure the ads are working for the right audience, remove ineffective phrases, adjust stopwords
A common mistake: In high CPA is not always;the fault of the one who manages the contextual advertising. For site is difficult to navigate or buttons don t work, a user might be interested in the product but leave without taking the targeted action. That'll increase CPA and mess up your bottom line
To look not only;at CPA; but relatedmmetrics -conversion and behavioral metrics like session length of the page viewed
The cost of achieving a goal or CPA
Hardly anyone will be happy to get one conversion per month, even for 5 -$10$, which at the present level of competition is not available to all niches. With small budgets that are not able to provide a decent level of traffic, even not worth making a story with the creation of the site for the advertising activity. If the target audience is small, with the task is better handled by the presentation site, which can be sent to email base, business presentations and offline events. And In PPC it's not only;the#cost of attracting a customer that matters, but the volume of customer traffic that will provide liquidity. That's why it's worth examining CPA in tion in connection with the number of conversions.
Conversion rate
ROAS shows the return on your contextual advertising investments. This metric helps you understand whether it's profitable to continue investing. To calculate ROAS, divide your advertising campaigns returns by their cost
For example, if you spend $200,000 and get a return of $0.7 mln:
ROAS = (700,000 - 200,000) / 200,000 = 2.5
This means that every $1 invested brought you $2.5
Minuses: By itself ROAS has nothing because the calculation only considers the costs of contextual advertising, but not the cost of goods. For example, with a seemingly great ROAS of 1,000% the campaign can be unprofitable. On the contrary, a business with a large margin advertising with ROAS 150-200% can bring quite a good profit
Profit from contextual advertising: ROAS
LTV or Lifetime Value shows how much your customer spends on average over the entire period of your relationship. It's a complex metric that depends on many factors:
Profit from the customer: LTV
There are many ways to calculate LTV. For example, you can multiply the average receipt, the frequency of repeat purchases and the average period of cooperation with the customer:
LTV = AOV*Lifetime*RPR
Another possible formula:
LTV = Lifetime*ARPU
How to use: In most use another metric - CAC. It shows the cost of attracting one client. When evaluating the effectiveness of contextual advertising use the ratio LTV / CAC. If LTV is less than CAC, that is to attract the visitor you pay more than he spends himself, such advertising is not profitable. The optimal LTV/CAC ratio is usually considered 3:1, but it can change depending#on the campaign
There are two ways to improve that ratio -increase the LTV and decrease the CAC. To reduce CAC, the specialist segments the audience in depth by offering more personalized ads to potential customers. To increase LTV, they usually use presales, mailing lists, personalized discounts
Minuses: There are a lot of variables in this model. It's hard to predict in advance how long customers will buy from you on average. For service with subscriptions, for people tend to stay longer on high rates than low ones. If the specialist is not familiar with such details, the calculations will be deliberately wrong
the average period of cooperation with the client - Lifetime
Average Order Value (AOV)
Repeat Purchase Rates (RPR)
Average Revenue Per User (ARPU)