Learn about the performance marketing metrics worth knowing for managing your digital advertising campaigns.
The KPIs to keep in mind when managing your digital ad campaigns
Performance marketing is all about results — clearly defined, closely tracked results. It’s about having a specific goal in mind and taking (and testing!) the steps to achieve it, which makes it an especially powerful tool in the digital advertising arsenal.
Here’s the question, though: How do you know when you’ve achieved your goals? That’s where performance marketing metrics come in. These are the key performance indicators (KPIs) that will tell you whether or not you’ve met your goals — and how much money you’ve spent to do it.
Important Performance Marketing Metrics
Performance marketing metrics provide touchpoints for you to be able to assess the state of your marketing campaigns, how well they’re succeeding, or where you might have room for improvement. There are a lot of performance marketing KPIs to keep an eye on. Here are the 15 we recommend paying the closest attention to.
In digital marketing, especially in connected TV (CTV), it’s possible to generate a metric for almost any activity. This makes it possible to hit a variety of performance marketing KPIs, from impressions to leads.
Impressions are perhaps one of the most valuable performance marketing metrics, as they directly count how many times an ad has been shown. After all, it’s going to be difficult to reach your other goals if your ads aren’t being seen enough. Each time an ad appears, that’s an impression.
Impressions are typically aggregated and counted by 1,000. This is referred to as “per mille,” from the French for 1,000. If you’re paying for ad impressions, be prepared to pay “per mille.”
Clicks are another important digital advertising KPI, and represent a step above an impression. Clicks tell you how many people “clicked” on an ad. A click can take a user to your website, a download page, or wherever you want.
Clicks are a valuable KPI because they represent a level of user engagement. Effective CTAs and quality ads lead to more clicks, so if your clicks are high, you know you’re onto something with your marketing campaigns.
Click-Through Rate (CTR)
CTR is the percentage of impressions that resulted in a click. CTR combines impressions and clicks to make one of the most truly useful KPIs. It’s one of the most helpful performance marketing metrics, as it tells you how many people who saw an ad took an action.
You can use your CTR to measure how effective your ad campaign is. A higher CTR is generally better, because it means more people who see your ads are compelled to act upon them in some way. CTRs vary by industry, but the average is around 1.9%.
Calculate CTR as follows:
Clicks ÷ Impressions = CTR %
CPC tells you how much you’re paying for every click. In performance marketing, if clicks are your target KPI, you would negotiate a CPC in advance, paying for the number of clicks multiplied by CPC. CPC is a useful metric by itself, but also in conjunction with other KPIs like CVR and CAC (see below) when considering the overall effectiveness of your campaign.
CPC can be calculated by dividing your total ad spend by the number of clicks generated by your ads. Like below:
$ Ad Spend ÷ Clicks = CPC
Conversion Rate (CVR)
CVR measures the percentage of people who complete a desired action. This could be downloading your app, visiting your website, or filling out a contact form — whatever you consider a successful conversion.
Measurement of conversions can be a bit trickier than measuring clicks, as you require transparency into the progress of a customer from your ad platform to where they will take the desired action. CTV excels at this sort of tracking, allowing you to attribute audience behaviors directly to ads in your campaign.
CVR also helps you determine the success of your marketing campaigns over time. You can compare CVR from one time period to the next to determine how well your campaigns are performing. This is particularly useful when A/B testing, as it lets you fine-tune your campaign strategy based on time-bound results.
You can calculate CVR as follows:
Clicks ÷ Conversions = CVR
Customer Acquisition Cost (CAC)
Customer Acquisition Cost is another of the key performance marketing metrics. CAC measures how much it costs to acquire a single customer. In other words, what are you spending on to bring that customer into the fold? CAC might include everything from staff salaries to design of ad creative, or it might zero in just on ad spend; it all depends on how holistic or precise a view you want of your acquisition costs.
CAC will also tell you about the performance of your ad campaigns. The lower your CAC, the better your ads are performing. It’s not enough to just be low, however; your CAC also has to be lower than your customer lifetime value (more on that below) or else it’s going to be very challenging to turn a profit.
Calculate CAC as follows:
Marketing Spend ÷ New Customers = CAC
Return on Ad Spend (ROAS)
ROAS calculates your overall return on the amount of money you’ve spent on advertising. This is an important performance marketing KPI because it tells you about the overall health of your ad campaigns and can help you identify your best-performing ad channels. A channel with a higher ROAS will be performing better than one with a lower ROAS.
Calculate ROAS as follows:
$ Profit ÷ $ Total Amount Spent on Advertising = $ ROAS
Return on Investment (ROI)
ROI is similar to ROAS, but it calculates the effectiveness of a total investment as a percentage. In this case, the investment would be the amount of money you’ve spent on advertising, including channel costs and the costs to produce the ads. ROI is how much money you have earned from that investment minus the costs.
Calculate ROI as follows:
$ Profit from Investment ÷ $ Cost of Investment x 100 = ROI %
Marketing Qualified Lead (MQL)
An MQL is a lead for a potential customer who has awareness of your brand but has not yet decided to make a purchase. If you consider the journey a prospective customer takes from knowing nothing about your brand to making a purchase the “marketing funnel,” then an MQL is mid-funnel, halfway between knowing nothing about your brand and becoming a customer.
MQLs may have interacted with your advertising, filled out a form, clicked an ad, or become qualified as leads in some other way. They are worth identifying and singling out because they have demonstrated interest, which should, in theory, make them easier to convert than someone who hasn’t. MQLs should be courted to move them further down the funnel and convert them into sales qualified leads (below) or customers.
Sales Qualified Lead (SQL)
An SQL is a potential customer who has moved through the funnel toward the bottom and is ready to make a purchasing decision. How SQLs are defined will vary, depending on your internal criteria. These could be users who have downloaded a demo or who have placed items into an online shopping cart.
SQLs are typically considered likely to make a purchase and should be treated as such. They are also typically further along the funnel than MQLs. A high number of SQLs can be considered a sign that your marketing is effective.
Brand awareness is, perhaps, one of the hardest performance marketing metrics to calculate, but it is also one of the most important. A high brand awareness means customers are being made aware of your brand and are, therefore, more likely to make a purchase. A low brand awareness might mean your marketing isn’t as effective as it could be.
Unfortunately, brand awareness is also one of the hardest performance marketing metrics to quantify. There is no simple formula. Instead, you will want to measure your brand’s impact on a variety of channels and across multiple channels.
For example, to estimate your brand awareness on social media, you will want to measure your follower count and how many mentions you typically receive. This will tell you how aware users of that social channel are of your brand. If your engagement on a social channel is low, you will need to launch a more proactive brand awareness campaign.
You can also use branded search to estimate your brand awareness. Branded search is what appears on a search engine results page in response to a search for your brand name. Ideally, your brand will be the top result, but it isn’t always. If you have a common brand name or share your brand name with someone or something else, you might lose that top spot.
Average Customer Value (ACV)
ACV is the average amount of revenue that a customer brings to your business within a specified time frame, such as one year. This can be calculated in a number of ways.
For example, you can multiply the average order size (AOS) by the average order frequency (AOF) to get ACV. This multiplies the typical amount of a customer order by the typical number of orders that customer will make over a certain amount of time. Another way to calculate ACV is taking average yearly revenue and dividing it by average yearly customers. The best way for you to calculate will depend on your business; if your customers only make one or two purchases a year (such as in car sales), then order frequency may not be helpful for you.
ACV tells you a lot on its own, but it’s primarily used as part of the formula to calculate customer lifetime value (below).
Calculate ACV as follows:
$ AOS x AOF = $ ACV
Average Customer Lifespan (ACL)
ACL is the average amount of time you can expect a customer to remain a customer. This can be useful in determining the lifespan of your products or the effectiveness of your customer retention efforts. ACL is closely related to to churn rate (see below).
You measure ACL as follows:
Sum of Customer Lifespans ÷ Number of Customers = ACL
Customer Lifetime Value (CLV)
CLV is one of those extra special performance marketing KPIs. It’s used to tell you how much you can expect to earn from a single customer over the course of their relationship with your business. This can inform your decisions on how much to spend on customer acquisition and inform you of the effectiveness of your marketing overall.
CLV also helps you identify high-value customers who spend more than average or place more orders than average. This will allow you to focus retention efforts and potentially extend the ACL of those customers.
This is why CLV is an important KPI alongside CAC. CAC tells you how much it costs to acquire the customer, while CLV tells you how much you can earn from them. If your CAC is higher than your CLV, you’re losing money and need to adjust your marketing spend or change up your ads.
Calculate CLV as follows:
ACV x ACL = CLV
Churn rate is the percentage of customers who cease being customers after a certain period of time. The value of knowing this is that it’s something you can potentially do something about, like improve your retention efforts. Knowing your churn rate can also provide insight into other aspects of your business; for example, if your churn rate increases after you launch a new version of your website, something’s probably gone awry.
Churn rate also tells you how many new customers you will need to acquire to replace those you are losing. If you know your CAC and your churn rate, you can estimate a marketing spend to target the specific number of customers you need to acquire to replace those who have turned out.
Churn is calculated over a specific time period as follows:
Number of Lost Customers ÷ Total Customers at the Start of the Time Period x 100 = Churn Rate %
Target CTV Advertising With tvScientific
Even knowing all of these important marketing metrics, it can be difficult to manage and maintain your marketing campaigns. tvScientific can help with a single dashboard for all of your CTV ad campaigns, transparent and reliable metrics, and real-time reporting to eliminate the guesswork and increase your ability to convert. Contact us today to learn more.