The most important pay per click metric is not click through rate
Apr 23, 2007 Pay Per Click
It is still amazing to me the number of people who care most about what their AdWords or Yahoo Search Marketing CTR is on their ads, while seemingly ignoring what is arguably the far more important - not to mention valuable - pay per click metric. Yes, CTR is valuable to know, but in reality, a higher CTR doesn’t necessarily equate to higher profits or sales.
So what is the most important metric for pay per click advertisers? ROI. The Return on Investment is the most critical metric to consider when tweaking PPC campaigns. But not only do too many people give an in proportionate amount of time focusing on their CTRs, many of those same people are doing so without a clue as to what their ROI is! They are simply working off the assumption that higher CTR must mean higher ROI, without having the data and stats to backup their beliefs. This thinking is so flawed when ROI isn’t be tracked.
Ad copy has a crucial impact on CTR. But it is not unusual to have an ad with a higher CTR actually perform far worse when looking at it from an ROI standpoint, while an ad with a lower CTR convert several times higher for the identical product… even with the identical landing page. Why is this? Because ads can definitely be written that tend to bring greater numbers of clicks that don’t lead to sales.
For example, you could write one ad without a price, or even wrongly implies a fabulous deal or freebie offer, or a comparison shopping site that will offer a variety of pricing from many different online retailers. These types of ads tend to have a higher CTR because they are much more likely to bring in clicks in droves, while those clicks tend to have a much higher percentage of “looky-loos” who aren’t prepared to type in their credit card number and complete the purchase.
The second ad with a price in the ad copy will have fewer clicks, since people don’t need to click to see your price and then click back to check out your competitors. But even though you have fewer clicks, they are more qualified since they already know your price and are less likely to be in that comparison shopping phase and are more likely to be further along in the buy cycle. Now, your CTR is lower, but so is your cost of acquisition. This results in an ad with a lower CTR but with a much higher ROI.
Are you not tracking your ROI yet? You definitely need to be using one of the many PPC trackers out there so you can properly monitor relationships between CTR, ad spend and sales, so you know exactly what your ROI is on every keyword you bid on. This will also allow you to reduce your overall spend by getting rid of under-performing ad copy and keywords, as well as potentially upping your bids on the golden keywords… the ones that have that great ROI you really don’t want to live without! Putting steps in place so that you will know what your ROI is should be at the top of your PPC to do list, if you are one of those advertisers who currently does not not track it and uses CTR to gauge campaign success.
So while CTR is an important metric for any pay per click advertiser, you need to be certain you are not sacrificing a higher ROI for that higher CTR. ROI is definitely your most important pay per click metric, and this should be the top priority in any pay per click campaign. Because at the end of the day, only your ROI is directly related to how much money you make at the end of the day.
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April 23rd, 2007 at 6:34 am
What PPC tracker would you recommend?
April 23rd, 2007 at 8:07 am
I’m an experienced SEO just getting into the PPC arena and I couldn’t agree more, Jen. One of my old bosses used to tell me that, “Marketing is never a cost… if done correctly.” It took me awhile to figure out that she was talking about ROI, and achieving a good one has been my goal ever since. To think some people run any kind of marketing without focusing on it is mind-boggling to me now.
April 23rd, 2007 at 11:46 am
What about conversion? If my PPC campaign is focused on getting ppl to download my whitepaper, the ROI might be the further business derived from that, but the ‘clicker’ converted and downloaded my whitepaper. So would the most important metric still be ROI or conversion?
April 23rd, 2007 at 2:06 pm
[...] The most important pay per click metric is not click through rate [Jennifer [...]
April 23rd, 2007 at 2:12 pm
I wonder if all the concern about CTR stems back to the old days of having to be paranoid about your CTR to ensure your keywords didn’t go ‘inactive’ in the legacy Adwords system. Of course Adwords has changed since then, but the mentality sticks…
April 23rd, 2007 at 9:02 pm
I think the main problem is that within the standard AdWords reporting, click through is shown against impressions.
Therefore, the natural tendancy is to get a higher click through rate.
A lot of people use PPC for traffic without thinking carefully enough about what they are trying to achieve with that traffic.
April 23rd, 2007 at 11:55 pm
Don’t ignore CTR as a measure.
While CTR is not as important as ROI, it can help determine your quality score and affect your cost per click levels.
I usually measure a campaign by ROI but also dedicate some time to reaching decent CTR, at least at the beginning of the campaign
April 24th, 2007 at 8:49 am
Ohad-CTR is only a factor in ONE of Google’s quality score algos-the ‘ad rank’ QS. It doesn’t affect your min bids like the landing page QS.
April 26th, 2007 at 5:37 am
Surely ROI is the ultimate goal we’re working towards, while CTR is always a good indication.
April 27th, 2007 at 9:00 am
Geordie,
While CTR is only a factor of the quality score as you say, it is very important especially for crowded markets if you want Google to show your ads at the campaign initial stages
May 3rd, 2007 at 10:42 am
Thanks Jen for this insight. I just found your new blog today. Keep up the good work.
July 17th, 2007 at 6:41 am
If everybody agrees, at least someone has to disagree ;-)(late, however).
One essential characteristic of PPC auctions is that there is a trade-off between volume and profitability/ROI. Higher bids lead to lower margins, but at the same time to higher (better) positions and increased volume of clicks. Profit is the goal of PPC, not ROI! ROI increases with lower positions (that’s scientifically proven). So what would you prefer? a) ROI = 350% and Profit = 10$ OR b) ROI = 15% and Profit = 100$. I would take b) However, I agree, ROI-metrics are more important than CTR (CTR doesn’t much).
April 1st, 2008 at 10:47 am
[...] Do note, that CTR rate isn’t the key, because this is what many advertisers focus on. With Google AdWords focus on it when it comes to their quality score algorithm, many advertisers have begun focusing on CTR as their main metric. It is your ROI that will be your determining factor in whether the pricing ad copy works. Want to explore this a little more? Read The most important pay per click metric is not click through rate. [...]
April 8th, 2008 at 4:54 am
You make some great points…and I’d like to hear what you think is the best way to determine your best performing ads when you take into consideration CTR and Conversion rates. Some have suggested to multiple these two to get a ratio (CTR X Conversation Rate = ?). I would think there is a more precise formula..some of my tracking does not provide me with the cost of a conversion but simply the % of clicks converting so I don’t think I have all of the data…any suggestions?