Study Notes #9

Click Through Rate (CTR)

• user/customer clicks through an ad
• we need to calculate both the number of impressions and the number of clicks.
• Formula: Click Through Rate (CTR) = (Clicks/ Impressions) * 100

Interpretation of CTR

If a person clicks through the ad, it does not mean the customer purchased, but rather they are showing interest in what the ad is about. When your CTR is low, your ad campaign is not generating enough interest. When the CTR increases, it is an indicator of effective and interesting content in your ad campaign, and that maybe you should increase the number of impressions for that ad.

• Click Through Rate (CTR) is the ratio of users clicking on a link or an ad to the number of total users who received the link or saw the ad.
• CTR measures the success of an advertising or email campaign.
• When the CTR increases, it is an indicator of effective and interesting content in your ad campaign, and that maybe you should increase the number of impressions for that ad.
• In general, a 2% CTR is good, however, the rate will vary by industry.

Benchmarks for CTRs for Google Ads across industries.

• Check out this blog that provides useful benchmarks for CTRs across industries: Wordstream Blog

Cost Per Click (CPC)

• cost to get a click on your ad
• It helps us gauge the cost of advertising on the specific platform, so we can see which platform is generating more leads.

Formula:

Cost\medspace Per\medspace Click\medspace (CPC) = \frac {Cost\medspace of\medspace Advertising\medspace on\medspace Source\medspace Platform}{Number\medspace of\medspace Viewers\medspace who\medspace clicked\medspace on\medspace the\medspace ad}

Interpretation of CPC

• CPC is an indicator of the cost-effectiveness of the ad platform and a useful tool to compare and strategize about which marketing platform is yielding a higher impression and reach and resulting in potential leads.
• Different ad platforms cost differently and it is important to remember that while one platform might be cheaper it may not necessarily deliver you as many potential customers as another platform. This is an important trade-off that analysts and marketing teams have to consider.
• Some marketing channels or platforms convert amazing results but they are small and may not generate as many customers. While you may decide to continue using them, you will also need to identify marketing channels that deliver more potential leads.

Cost Per Lead (CPL)

• we are tracking whether the potential customer turned into a lead within a given time period, that could be a 30-day window or 60-day window.

Lead – when a potential customer visits your website and does something on the website in response to a prompt

Formula:

Cost\medspace Per\medspace Lead\medspace= \frac {Cost\medspace of\medspace Advertising\medspace on\medspace Source\medspace Platform}{Total\medspace Number\medspace of\medspace Leads}

Interpretation of CPL

• CPL is an indicator of the cost-effectiveness of the ad platform and a useful tool to compare and strategize about which marketing platforms yielded more leads.
• A low cost per lead means more of this particular type of person is likely to be interested in the product.

Useful Resources and Links

The following websites provide some benchmarks for Cost Per Lead by industries.

• Marketing Charts – Cost per Lead (CPL) Benchmarks, by Industry, Revenue and Company Size
• Hubspot – Lead Generation: A Beginner’s Guide to Generating Business Leads the Inbound Way

Example:

Our recommendation for the marketing team would be that Facebook appears to have the highest Cost Per Lead of $5.83 while getting 450 clicks. For a comparable number of clicks (497), Google YouTube not only has a lower Cost Per Lead ($1.18). Facebook also appears to have a high Cost Per Click of $0.70 compared to Google YouTube ($0.23).

Customer Acquisition Cost (CAC)

• metric used in the last step of the marketing funnel and tells us what the cost is to acquire a paying customer.
• This is the point where a lead, or potential customer, has become a customer by buying something on the website (a product or service).
• Most companies try to get that number under 25%.

Spending more than 25% of your revenues means you are spending too much to acquire new customers and spending less indicates that you are losing business opportunities.

Formula:

Customer\medspace Acquisition\medspace Cost\medspace (CAC)\medspace = \frac {Total\medspace Sales\medspace and\medspace Marketing\medspace Costs}{Number\medspace of\medspace Converted\medspace Customers}

Sometimes it takes a long time for a lead to convert to a customer. For example:

• A lead may sign up for a free account or download for a few months and then be prompted to become a paying customer then.
• A marketing campaign may intentionally take some time to realize the revenues it is trying to generate.

To account for this 'lag' in revenue, CAC is often calculated based on a company's average sales cycle. (*averaged across the targeted time period* )

Formula:

Customer\medspace Acquisition\medspace Cost\medspace (CAC)\medspace = \frac {Prior\medspace Month\medspace Marketing\medspace Costs\medspace +\medspace  Weighted\medspace  Costs\medspace  (Overhead\medspace  +\medspace  Salaries)}{Number\medspace of\medspace Paid\medspace Customers}

Example:

Interpreting CAC

• an indicator of how much it costs to acquire a customer. 
• the company’s goal is to keep the CAC low while increasing revenue, as this positively impacts the profit margin and profits.
• spending more than 25% of your revenues means you are spending too much to acquire new customers and spending less indicates that you are losing business opportunities.