When eCommerce and online advertising first took off, Cost Per Click (CPC) was the primary KPI everyone watched. Fast-forward 10 years and online marketing has changed dramatically, placing even greater demands on proving and measuring online advertising ROI. For eCommerce companies especially, showing ROI for PPC requires an evolution in how we measure and grow success.
Many online retailers, and even PPC agencies, still utilize CPC as the main KPI, but in the highly competitive world of eCommerce it’s hard to imagine that a metric created in the formative years of PPC could reliably help companies beat out their competition and grow revenue. To replace CPC, here are three more advanced KPIs that directly drive and measure ROI from your PPC spend: Cost Per Acquisition (CPA), Cost Per Value (CPV) and Cost Per Profit (CPP).
Cost Per Acquisition (CPA)
CPA is a useful evolution of measurement, because it gets to the heart of ROI – “What am I getting for my ad-spend?”. CPA attempts to measure your ROI in terms of acquisitions, i.e., a newsletter sign up, sale, or contact request. Your definition of an acquisition is up to you, whatever you would deem important for your business.
While CPA gets you closer to an actual ROI measurement, CPA measures only the fact that there was a “success”, and not the actual value of that success. This may be acceptable for businesses that offer only one product or service, where the value is the same across all acquisitions. But for eCommerce companies that offer many different products with varying profit margins, CPA doesn’t quite cut it.
For example, if your online store sold Sony HD Camcorders ($249.99), a $15-20 CPA could be considered favorable. However, if you also offer several accessories, such as a Handycam A/V Cable ($19.99), then a CPA of $15-20 would be a loss.
While CPA is useful, most eCommerce companies offer thousands of products and a blanket measurement like CPA doesn’t accurately represent the value an acquisition or transaction. CPA moves you closer to more clearly understanding the ROI on ad-spend, but you’re still missing insight into the value of each transaction.
Cost Per Value (CPV)
CPV has an advantage over CPA by tracking the actual value returned to the business by the customer or transaction. The ability to track value on an acquisition has been around for quite some time using either Google Analytics or Google AdWords value tracking. However, it’s not just the tracking of the value that makes it useful. The value of a keyword must be taken into consideration with your bids and keyword strategies in order to optimize and compete effectively.
For example, if your premium product is an Interchangeable Lens Camcorder ($1,799.99), you’d be more inclined to increase your max bid on keywords that drive sales for this product, as the value of the sale is much greater than low-end camcorders or other accessories.
Fortunately, using AdWords or Analytics value tracking on your eCommerce site you are able to associate each keyword in your Adwords account with the amount of revenue generated. Using this data you’ll be able to optimize in order to maximize the amount of revenue possible. Simply put, you’ll be able to spend more where you’re making more and save money on keywords that aren’t generating their share of revenue. Value tracking is simple to install and configure into most eCommerce platforms. Here are the Instructions for AdWords or Analytics.
Cost Per Profit (CPP)
As good as CPV sounds, it is only the beginning of what is possible. Although CPV offers the advantage of being tailored to each item, it does not account for profit, which is the ultimate readout for commerce. Importantly, higher revenue per sale does not necessarily equate to a higher profit margin, so focusing on CPP brings the greatest ROI.
For example, the Interchangeable Lens Camcorder ($1,799.99) mentioned above may only bring a profit margin of $100, while the Sony HD Camcorder ($249.99) is much cheaper to manufacture and brings the same profit margin of $100. If you were to stick with CPV, you’d sink your resources primarily into the Interchangeable Lens Camcorder, which still brings in the same profit as the Sony HD Camcorder. This changes the game, because now you can avoid bidding on expensive keywords, if you can earn the same profit for less competitive keywords.
CPP is the ultimate metric for measuring and optimizing your eCommerce PPC campaigns. However, because CPP is more advanced, Google Analytics eCommerce Tracking must be integrated to capture transaction IDs and a profit value must be assigned to each transaction after the sale is complete – typically working with your companies ERP or order fulfillment systems to understand the total profit. Optimizing AdWords using this data exceeds Google AdWords’ current functionality and requires integration to third-party developers have met this need. Finch is currently the most popular option for CPP with support for updating transactions via Google Analytics Management API or their own simplified XML feed.
Optimizing your PPC campaign means you need to be thorough and laser-focused on the right KPIs for your business, not placing emphasis on the number of clicks or even your gross sale amount, but rather upon your net profit per click. Utilizing CPP as your KPI metric allows you to turn your PPC campaign into a lean, mean, profit margin machine to maximize your ROI.
Image credit: Laserproductsus.com. Used under Creative Commons License.
George Nielsen has been in the internet marketing game since 2008 and is passionate about helping businesses use SEO and inbound marketing to generate leads online. In 2012 he received a B.S. in Marketing Management. He resides in Saratoga Springs, Utah with his wife and daughter and is an avid fisherman and football fan.