What is of greater importance in contextual advertising: CTR, CPA, or ROI?

Internet marketing specialists quite often face the following question in AdWords campaign management while developing PPC strategy – “What metrics to choose for intelligent evaluation of the effectiveness of contextual advertising”.

There are different opinions regarding this matter and the most popular are the following:

  • Traffic;
  • Page CTR;
  • Cost per click (CPC);
  • Conversion rate;
  • Cost per action (CPA);
  • Return on investment (ROI advertising).

Let’s try to find out which of these metrics is the right one to choose for tracking and ads campaign optimization.

By all means, all the metrics listed above are important. But we need to understand that to achieve the best results for all of them at the same time is impossible. Therefore, you need to choose and focus on one or two, maximum three the primary ones and optimize your advertising campaigns in accordance with them. But which of the metrics to choose? What to start with?

It is necessary to follow the following PPC tips to take the right decision:

First of all, make sure you are able to measure all of these metrics and not just measure the average indicators for contextual advertising in general but by separate campaigns, ads, and keywords for any period of time. Why to measure the efficiency in detail? It is necessary to measure the metrics in details in order to be able to adjust the budgets between efficient and inefficient campaigns.

Secondly, ask yourself at what stage of the life cycle your business is on the Internet. See below the graphical representation of business life cycle stages. Let’s explore each of them in more details.

“Market access and explosive market growth” stage. As a rule, this stage is characterized by simple strategic goal, which is to capture the market share and bring a new product to the market. Therefore, it becomes essential for an advertiser to deliver information about a new product to the maximum number of prospective customers at the lowest cost.  Very often there is no target to directly return the investments in advertising at that stage. As a consequence, the best performance indicators to track are the amount of traffic to the site and cost per click. Moreover, the balance between these two indicators is formulated as follows: “To get the maximum number of targeted clicks at a price that doesn’t exceed defined level”.

“Smooth growth” stage. Usually this period is characterized by the following strategic goal – to pay off the resources invested in advertising during the smooth growth. In this case there is no target to come in contact with potential customer, but what is important, it’s the cost of a real customer, which should not exceed the sales revenue. At this stage the primary are sales volume and CPA. The balance between these two indicators is formulated as follows: “To get the maximum number of sales and the CPA that doesn’t exceed defined level”.

“Stabilization” stage. This period is characterized by a decrease in growth and its transition into the smooth stage. At this stage an advertiser’s goal is to maximize profitability and cost-effectiveness. Thus, the primary efficiency metrics are ROI (Return on Investment) and profit. These two indicators may be not associated with each other and so you are able to optimize your advertising campaign only for one of them.

Below is the table summing up all the above written:

So, to summarize we may say: the choice of key performance metrics always depends on the marketing strategy and the life cycle of the company on the Internet. It is not worth optimizing your advertising campaign for all of them at once. If you try to optimize the campaign, so that to be able to measure all the key performance indicators simultaneously, than most likely you won’t be able to achieve the maximum results for any of them. However, one should keep in mind that if one of the indicators is not used for optimization due to certain reason, still it must be measured, just in case you decide to change the strategy when you come from one life cycle stage to another.

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What is of greater importance in contextual advertising: CTR, CPA, or ROI?

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