Internet Metrics

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From Clicks to Value
Understanding Internet Marketing Metrics

The biggest challenge with marketing
metrics is the Internet which is the Wild
West.

The Internet is the new frontier for
marketing and is not yet completely
figured out

In the American West of the 1800s,
there was lawlessness, bandits and ad
hoc laws and approaches for survivial

Internet marketing is much the same

Innovation occurs rapidly and rules are
continuously re-written – if written at all

When we first started this journey, I
talked about a marketing divide – that
few organizations “get” data-driven
marketing and majority do not

This divide is alive and well for Internet
marketing.

Our approach to understanding Internet
marketing is to start by focusing on the
biggest piece of online marketing
budgets and work our way forward from
there.

In November 2008, eMarketer published
a survey that found Search Engine
Marketing (SEM) was 45% of online
marketing spending and was predicted
to be 49% of spending in 2010.

When we talk about Internet marketing
metrics, there are some basics like CPC,
TCR and ROA that take a bit of time to
get used to, but the effort is worth the
result.

Metric – Cost Per Click (CPC)

When we talk about Internet marketing,
the discussion starts with the most basic
discussion –

Cost Per Click
vs.
Cost Per Thousand Impressions

In 2004, on a flight from Washington, DC
to Chicago, I happened to sit next to a
senior partner from a big five consulting
firm

He said to me –
“I don’t get it – search is easy. What’s
the big deal about Google?”

Search engines are fairly
straightforward. They create “robots”
that scour the Web and tabulate all the
web pages in existence and the
keywords on these pages.

We, as users, can search this very large
table for specific web pages with
corresponding keywords.

The challenge in SEM is ordering the
very big list of web pages with keywords
you want in some way to make sense.

In the early days of the Internet, search
engines counted the number of
keywords on a page to define the search
order – more occurrence meant higher
rankings

So web developers just listed their
keywords lots of times on a each page to
influence the search order. To fight this,
Yahoo! Had buildings full of people to
review these results.

But in 1996, Larry Page and Sergey Brin,
had an insight that would change the
world. They had the idea to rank-order
search web pages on the number of links
to a given web page.

That means that the more people who
link to a web page, the higher the
ranking of the page.

On September 4th, 1998 – Google was
incorporated and patented as the best
search engine algorithm in the world.

The marketing business model for the
Internet up until 1997 had been based
upon CPM – Cost Per Thousand
Impressions.

That means that every time an
advertisement appears on a web page
(impression), the advertiser is charged
the rate.

1997 brought about the first CPC – Cost
Per Click – model, which is now the
standard for measurement in SEM.

Cost Per Click
The Essential Search Engine Marketing

CPC vs. CPM is a subtle shift in global
Internet marketing strategy

In the CPM model, the person doing the
search is most important and advertisers
pay just to be seen by the searcher.

In the CPC model, the company being
searched is more important, and
advertisers pay for a click-through that
has good odds of resulting in a purchase.

CPC is the equivalent of Demand
Generation Marketing.

The CPC for Google is very expensive –
you can spend hundreds and thousands
of dollars a day depending on the
volume of search words and how broad
your geography is.

So how do we ensure that we are getting
the biggest bang for the marketing buck
in SEM?

For this, we need a few more metrics
and two essential ones that we will
discuss.

Transaction Conversion Rate (TCR)

Internet search is broken down into two
components….

Natural Search – Organic Search
&
Sponsored Search

Natural searches are the search results
based in part on the number of links to a
page from other sites.

Sponsored Searches are the paid links on
the top and sides of the search page.

Our focus is on the sponsored search
results since we as marketers can control
these.

When we talk about about sponsored
search marketing, we need to
understand that there are two more
terms that we should be familiar with…

Bid Strategy – the placement you would
like to get on the page.
1 – 4 are the first 4 sponsored links
5 – 6 are the following two

Match Type – the user must type the
exact words (exact match type) or the
words can be typed in any order (broad
match type). Match type can also
include phrases (phrase match).

In Match type, there is also negative
matching which allows us to exclude
specific words/phrases.

So let’s look at
some examples

VOIP can have a broad or exact match
type. For example, “VOIP calls to Turkey”
is a phrase match.

But Turkey is also part of a brand name
of alcohol. So using negative match type,
we can exclude the phrase “Wild Turkey”
so that alcohol results would not be
included.

Transaction Conversion Rate
The percentage of customers who
purchase after clicking through to your
web site

In addition to CPC, the next really useful
Internet marketing metric is click-
through rate (CTR)

Click-Through Rate
The percentage of customers who click
through on a link and is calculated from the
number of clicks divided by the number of
impressions (ad served).

The central idea of SEM marketing is
that you buy keywords and placement
with specific match types.

So to understand CTR…

You might bid $4 for VOIP with a broad
match type and a bid strategy of 1 – 4.
That would mean…

Position 1 - $4
Position 2 - $3
Position 3 - $2
Position 4 - $1

Looking at other bids and strategies, you
would end up paying up to $4 for every
click after a VOIP search.

Now, Google works on a volume basis. If
you have a high historical CTR, you can
get a higher placement for a lower CPC.
Google favors those who have high
volumes and high probabilities for CT.

Why?

It maximizes Google’s revenue
Google Revenue = CPC x # of clicks

Why is this model bad?

It favors large brands with a history of
good CTR. That means if you are new to
the SEM market, with no history, it will
be difficult to get higher positions at fair
pricing.

We use CTR and TCR to calculate the
Take Rate
Take Rate = CTR x TCR

The take rate is just the percentage of
customers who click through times the
percentage who convert to a sale once
they click through.

Return on Ad Dollars Spent (ROA)
ROI for Search Engine Marketing

To complete the SEM metrics, we need
to cover the equivalent of ROI for SEM –
Return on Ad Dollars Spent (ROA)

Return on Ad Dollars Spent
Measures the efficiency of generating
net revenues from ad dollars spent
when the end action is the purchase.

ROA is calculated as follows:
ROA = Net Revenue/Cost

Understanding the Numbers

Optimizing Your SEM Strategy
1. Optimize the Publisher Strategy – Figure out which publisher will give you the best
results for the money you are spending.
2. Optimize the Campaign Strategy – Analyze the campaigns within the publisher to
determine the campaign changes needed to deliver the most value
3. Calculate the KPI Impact – Determine the impact of campaign changes on key
performance indicators (KPIs) such as net revenue and ROA.

Internet Metrics

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Internet Metrics