Many of you measure the success of paid search campaigns based on the number of conversions or sales alone. Don’t take it personally but I think this is the wrong approach! PPC optimisation should focus more on business goals. And an enhanced conversion tracking system is the key to it.
Let’s have a look at a simplified conversion chain:
From the search query and the click on an ad through to the order: a PPC campaign can be analysed and optimised at many places of a conversion chain. The conversion itself though should be tracked in detail because it plays an essential role to check the effectiveness of promotional activities properly. It is also crucial for the optimisation of the account by a bid management system. For example, if one has a keyword with a higher than average conversion rate, this keyword may be priced higher as it promises some success. But a closer examination of the conversions shows that the keyword has a particularly low margin. Bidding higher because of the high CR will get you more traffic, but this traffic won’t be very profitable.
Linking conversions with monetary values
Whenever there is a conversion, one or more monetary values should hence be linked with it. Only in this way, the advertising costs and the associated returns can be compared. The optimisation of PPC campaigns can therefore be better aligned with business goals.
Business goals can be expressed and measured in terms of maximisation values and efficiency metrics. This may sound complex but it really isn’t. A maximisation value is an absolute value, which usually directly affects the business situation, e.g. the turnover achieved. The corresponding efficiency metrics put the capital employed – such as advertising and service costs – in relation to it.
Efficiency metrics are strongly subject to the industry trends and can serve as an indicator in comparison to other advertisers. However, without considering the maximisation of absolute values or the advertising expenditure, they have little significance.
To make this more clear to you have a look at table 1. It shows different business goals and the conversion data they need.
Maximisation values cannot be optimised separately from efficiency metrics. Thus, a doubling of sales while keeping the cost-turnover ratio unchanged is desirable but usually not achievable alone through higher advertising expenditure.
Examining historical tracking restrictions
It should be examined whether the existing maximisation values of a PPC strategy support the current business goals as directly as possible. Quite often, the tracking is rudimentary for historical reasons. This may be enough if all products have similar margins and differentiated customer acquisition plays a minor role. With highly heterogeneous product ranges, differentiation that leads away from work to averages pays off quickly however. For example, an online shop operates with an average margin of 12.5% in the product category “shoes”. The product “sandal” has a margin of 20% however. Enhanced tracking could transfer the right margin to the bid management system. The sandal would thus be priced higher, more viable traffic would be achieved and revenue potential will not go wasted.
Table 2 compares rudimentary tracking, AdWords conversion tracking and enhanced tracking. If only compared using revenue (respectively the cost-turnover ratio), keyword A wins with the same costs. But when it comes to the margins achieved and the number of new customers gained, things change with you concentrating more on profits or attracting new customers.
Enhanced tracking additionally records the achieved margin (difference between supply and purchase price) as well as information on whether a new customer has been obtained with a conversion. This information may be valuable to you: satisfied new customers return; through subsequent purchases, further sales can be expected. It is important to quantify and track this new customer value so that the bid management system can prefer keyword segments that attract new customers efficiently.
More flexibility through detailed tracking
While a bid management system can only optimise the turnover or the number of conversions based on the rudimentary tracking, the enhanced tracking offers a large range of options for optimisation. The conversion values that bid management maximises can now be put together in different ways:
If you made it until here, good for you! Let me emphasize it again: it is crucial that the data used reflects the business goals in the best possible way! If this is the case, you can assess the success of your campaigns in a better way and leverage new optimisation potentials as part of your paid search strategy.