Whether you’re new to the digital advertising space or have been a long-time user, you’ve probably debated over the correct metrics to use for campaign optimization and measuring success. Looking at any digital advertising report can be overwhelming as it quickly involves acronyms, pixels, sizes, and percentages, all without a benchmark for success. And there isn’t a one-size-fits-all digital advertising metric as a variety of factors like your goals, objectives, industry, and product & service come into play.
Before you dive into building your first ad campaign, you’ll need to ensure you understand what constitutes success for each ad, which performance indicators to track, what metrics to keep an eye on, and how to measure your progress in real time. We’ll look at two digital advertising metrics, cost-per-action (CPA) and cost-per-click (CPC), to better understand the advantages and disadvantages of each and how they can assist in measuring success.
Digital advertising metrics: Cost-per-action (CPA)
Cost-per-action, also referred to as cost-per-acquisition, or “CPA,” is a digital advertising metric that measures the aggregate cost to acquire one paying customer on a campaign or channel level. CPA is a vital measurement of digital advertising success as it supports the investment needed to acquire a customer through paid marketing. With a Cost-per-action (CPA) campaign, you’ll evaluate performance based on visitors completing a specific action that you define at the start of the campaign. This action can be a purchase of a product, a download of a document, sign-up for a newsletter & membership, or any other steps. Keep in mind, CPA is also a good metric for companies that don’t directly sell a product or service on their website. The acquisition or conversion can be a lead capture, demo signup, or one of many other indicators of a potential customer.
CPA is calculated by dividing the digital advertising spend by how many sales or conversions occurred.
Cost-per-action (CPA) calculation
$1,000 spent in January / 10 sales = $100 CPA
There is no universal benchmark in digital advertising for a “good” CPA. Every brand, company, and industry has different margins, prices, and operating expenses. The most important factor in determining a desired CPA is understanding these factors, enabling a business to calculate how much they can reasonably afford to pay for acquiring customers.
Advantages:
- Directly evaluating for a specific action a customer is taking
- Generate ideal site engagement with the desired action
- Gives you better control of tracking across different marketing channels
- CPA ensures that you’re investing in the most cost-effective channels of various marketing efforts
Disadvantages:
- Could generate low engagement on a single action, even if you’re serving lots of ads and generating lots of clicks
- High-value products or services will need higher budgets to achieve the desired outcomes
- CPA becomes handy once you figure out how much a certain customer’s action is worth to your business
- Can calculate across channels and objectives as you are learning and optimizing campaigns
Digital advertising metrics: Cost-per-click (CPC)
Cost-per-click, also referred to as “CPC,” is one of universal digital advertising metrics that measures the aggregate cost to acquire one click on a campaign or channel level. Cost-per-click (CPC) means that the advertiser pays each time one of their ads is clicked. In other words, the advertiser is paying for visitors sent to their site.
CPC is calculated by dividing the digital advertising spend by how many clicks occurred.
Cost-per-click (CPC) calculation
$1,000 spent in January / 100 clicks = $10 CPC
Similar to other digital advertising metrics, CPC prices will vary greatly. More competitive industries and those with expensive conversions—like dating, legal, insurance, and financial services, or products like enterprise software and industrial equipment—tend to cost more per click.
Advantages:
- Ads are displayed to your target audience during the top of funnel type acquisition
- An early indicator if your digital advertising strategy is resonating with your incidence
- An ideal metric if you have additional goals, such as time spent on the site or the number of pages visited, as it can help guide changes that need to be made
Disadvantages:
- Can generate low traffic to website because your strategy or message isn’t resonating with your target audience
- Better suited for advertisers who are doing more broad, top-of-funnel type acquisition as opposed to looking for further down-funnel engagement
- Will vary drastically across channels and strategy
Why do digital advertising metrics matter?
The short answer: Attribution
Attribution is critical because it allows you to evaluate what ads or digital advertising efforts are driving results and measure your impact. Yearly trends continue to show that marketers (and their bosses) are placing more and more importance on marketing analytics and attribution.
Performance Marketing Association’s recent State of Performance Marketing Report found that almost 75 percent of marketers believe attribution is critical or very important to marketing success. Despite this influx of interest, many marketers continue to track CPA, CPC, or other metrics to measure their campaigns exclusively. Tracking these digital advertising metrics alone completely misses a large portion of your audience—those who don’t click on ads, but may still be influenced to convert later.
Disadvantages of last click
- A small portion of people click on ads: Only 16 percent of users click on ads, and half of those—8 percent— account for 85 percent of all clicks on display ads.
- Last-click tracking incentives finding users who would buy without advertising: Last-click attribution models are fundamentally incentivized to find users already likely to purchase.
- Credit is not accurately assigned across publishers: Last-click gives all the credit to the last click and ignores any other marketing that occurred before the purchase. This means any previous messaging users were exposed to, in addition to any content they consumed that discussed your brand, isn’t appropriately valued.
In fact, in the same survey, almost 65 percent of respondents said that they currently employ a click-based attribution model. However, over 90 percent of them said that they plan to or are considering changing their attribution model in 2017, signifying a large shift away from click-based attribution in the coming year.
Unlike click-based attribution models, blended attribution allows you to take into account both views and clicks when measuring the success of your digital advertising campaigns. This digital advertising metric retains the simplicity and immediacy of click-based attribution while accounting for the cumulative effect of views. More importantly, it takes into account what we have always known—that viewing ads influences consumer behavior.
