Paid Search and Customer Value

Paid search is a popular (and effective) marketing tool, used by countless companies worldwide.  But what is the best way to measure the tool’s utility to your business?  Some companies keep it very simple and simply measure the CPC (cost per click), others use CPA (cost per action or cost per acquisition).  Do either of these metrics tell the whole story?

Cost per click can be a useful measurement if your site isn’t eCommerce related.  If your main concern is how many people clicked to your site from the ad, then frankly you don’t need to measure anything else.  But if you’re selling something from your site, CPC doesn’t paint the whole picture, because how many people clicked on your site is of secondary importance to how many people bought something from your site.  While more traffic is usually good, it’s the quality traffic that you’re hoping to gain from your Paid Search campaigns.  It’s a simple formula…more quality clicks = more conversions = more revenue.   You can’t measure ROI effectively by using a strict CPC metric.

So what about CPA?  For eCommerce retailers, this hits a little closer to the mark.  Conversions (or acquisitions) are the lifeblood of your business, so measuring your Paid Search campaign on a cost per acquisition basis would seem to make sense.  But does it paint the whole picture?  Not really…but almost.  It fails to factor in repeat conversions (and Customer Lifetime Value).  Think about it…if your Paid Search campaign attracts a customer who proceeds to buy from you every two weeks for the rest of their life, wouldn’t you want to know that?

I know this might not be the most ground-breaking insight in the world, but it’s definitely food for thought when looking at any Paid Search marketing that you may be doing.  It might be a little more labor intensive to try to track repeat customers and lifetime value, but if you want to make your decisions off the clearest picture possible, then it’s something your team needs to do.  Disagree?  Let me know in the comments section!

Nick

Posted under Analytics Thought of Day, Google AdWords, Uncategorized by NickThompson on 14th November, 2013 Tagged , , |

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V Greg Sobiech
November 15, 2013 at 1:43 pm

Nick, solid post.

The point about the need to look at the 2nd, 3rd, etc conversion, post that initial purchase – critical.

In fact, most cpc agencies do not know if the conversions they drove is in fact all from 1st time customers, or, from repeat, those that bought before. A share of cpc conversions probably come from new customers, while a share from repeat customers.

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