Performance Marketing Terminology Part – 1
We are in the era of digital marketing wherein advertising spends are growing year on year in leaps and bounds.
Here’s our compilation of a few terms that will help you track your performance marketing campaigns and the results associated with them. In this part, we have gathered all the metrics associated with the cost.
1. Cost Per Impression (CPM)
Cost per mille or cost per impression, basically the cost that an advertiser pays for 1000 impressions for a digital ad. To simplify, it tells us the cost of showing an ad 1000 times.
Why does it matter?
“CPM is the cost of buying any media. If CPM is low, the cost of media is lower, and eventually, your CPC will also be lower.”
2. Cost Per Click
Cost Per Click denotes the price paid for every time a viewer clicks on an ad or the link. It is a measure of engagement because the viewer has taken an action and actually clicked on the ad. With CPC campaigns, one pays based on clicks and not impressions.
Why does it matter?
“In an ideal scenario, a lower CPC combined with good conversions is a good sign for a paid campaign. Though, it is usually seen that good conversions lead to higher CPC.”
3. Cost Per Lead (CPL)
Cost per Lead is a metric used in lead generation campaigns, wherein advertisers create separate lead forms with important details like name, email, contact, city and so on required in order to initiate a sales conversation with a prospect customer.
Why does it matter?
“Ideally used by companies who don’t have an eCommerce store and want to get leads for the business.
For effective lead generation campaign performance, limit the number of details you ask from a prospect. Lesser the details, the higher the conversion.”
4. Cost per conversion
It is a metric that is calculated by dividing the total cost by total orders. The cost includes all the traffic brought to the website through the digital marketing campaign.
Why does it matter?
“It measures how well is the campaign performing and how much does it cost to drive conversion (product sale or app install or business inquiry) A high cost of conversion tells us that the ad isn’t well optimized; you could be targeting the wrong audience or maybe your ad copy isn’t captivating enough while a low cost of conversion means that the ads are doing good, well-targeted and optimized.”
5. Customer Acquisition Cost (CAC)
It is the cost of convincing a potential customer to buy a product or service. It is calculated by adding up the total expenses related to acquiring a customer divided by the total number of customers acquired over a given time period. The lower the cost of acquisition, the better it is.
Why does it matter?
“It measures the effectiveness of the customer acquisition strategy, scalability of the business in terms of how many customers can be acquired with a given budget and the long-term profitability of the company. One must keep evaluating Customer Acquisition Costs and periodically adjust and update for better results.”
6. Average Order Value (AOV)
It is the average amount of money each customer spends per transaction with your store. It is calculated by dividing total revenue by the number of orders. It is usually advisable to increase the AOV for profitability.
Why does it matter?
“The higher the average order value, the better it is. An increase in average order value over the period of time is a growing & positive sign for the business.”
