It’s hard to believe how quickly time flies. Around this time last year, Omniture released a research report which stated that most online marketers were underutilizing advanced metrics to manage their search campaigns. It was a sobering report, indicating that many marketers choose to optimize their portfolios based on first-order metrics like cost-per-click (CPC) and click-through-rate (CTR), instead of deeper and more foretelling metrics like profit per customer/order, return on ad spend, lifetime value per customer or any other insight that could really impact the bottom line of the company.

This survey got me thinking – has anything really changed in the last year? Or even the last ten?

If you look at the last decade of search marketing, the innovation behind web analytics has surpassed our greatest expectations. Google Analytics, Omniture and others have provided us marketers with the tools we need to precisely measure and predict performance. However, optimizing search campaigns based purely on CTR and CPC has become the industry norm due to its simplicity of measurement. And most search marketers (and clients) continue to have a strong bias toward these quick and dirty measurements, despite the fact that optimizing campaigns based on basic level CPC and/or CTR metrics can actually be detrimental to your campaign.

To prove this point, let’s get technical for a minute.

Say you optimize your campaign solely on CTR. You might see a lift in click volume, but you might also be compromising on performance. Likewise, if you optimize solely based on CPC you might reduce total spend but compromise on the click volume. Even if you optimize using both CTR and CPC you still might not be taking the right actions if your goal is to maximize profits or to minimize the cost per acquisition (CPA). Keywords with high CTR and low CPCs don’t necessarily mean that they convert better than some keywords with higher CPC. You might be better off getting 10 conversions from 100 clicks at $1 CPC compared to getting 5 conversions from 200 clicks at $0.50 PPC.

Throughout the economic downturn of 2008-‘09, nearly every search advertiser saw budget cuts. Consider another case where an advertiser’s budget is cut to half. As an action, if you eliminate keywords purely based on CTR and CPC you could be making a mistake. A deeper level metric like CPA is crucial for making right decisions in such situations. For example: let’s say there are two keywords that have the same CTR. Keyword1 has a CPC of $0.50 and CPA of $50 where as keyword2 has a CPC of $2 and CPA of $20. If you are measuring your success and optimizing solely on CPC, then keyword2 would be the best to cut. But if you look at deeper level CPA metric, you would cut keyword1 and focus your efforts only for keyword2.

From this simple example it is pretty clear that if your goal is to minimize CPA, then optimizing your campaign based using CTR and CPC can be detrimental.

Here are a few deeper level metrics that are often used by advanced marketers:

1. Cost per Acquisition (CPA) or Cost per Lead (CPL)
2. Return on Ad Spend (ROAS) or Return on Investment (ROI)
3. Profit
4. Customer Lifetime Value

Before you decide which metrics to adopt, it is crucial that you clearly define what your goals are, both broad and specific. Are you trying to maximize profit or revenue? Are you trying to create brand awareness? Or are you just trying to generate leads by driving visitors to an online form?  Choosing these goals requires careful thinking to ensure that the campaign is aligned accordingly with the objectives of the organization and its stakeholders, especially when there are conflicting goals (e.g. the CEO wants to drive more traffic to the site where as the CFO wants to cut the budget and optimize around CPA). Once the goals are chosen, the right deeper level metric(s) will present themselves as the right fit for your campaign.

The next challenge is to ensure that the right processes are in place to properly measure performance. According to the aforementioned Omniture survey, 43 percent of respondents did not know how to accurately measure profit per customer (or order). First, this indicates that there’s not enough of a focus on top-level profit and other KPIs at the online marketers’ level. Thus, it’s essential to consider establishing a strong emphasis on this and similar deep metrics throughout the organization, while creating as accurate and consistent a definition for them as possible, since all your optimization actions will be based on how these metrics change. Second, this also indicates that there’s not enough cross pollination of ideas in the SEM industry as they relate to this topic. You and your agency friends and partners can help overcome this by better sharing the best practices you’ve encountered with your clients.

In summary, optimizing your campaigns on the basis of simple metrics like CTR and CPC will not unearth the valuable information that could improve your understanding of the consumer. Adopting and customizing the correct deeper level metrics can provide significant insights to help guide your campaign optimization efforts, while ensuring long-term success against organizational strategy.

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