Performance Marketing Terminology Part – 2

February 16, 2022 Digital Marketing, Performance Marketing 0 Comments

We’re back with a few more metrics related to performance marketing to help you understand common terminologies used in digital advertising. Performance marketing is all about driving highest returns for your bucks and getting complete clarity on cost-related metrics is pivotal.

Once you have clearly identified important cost-related metrics for you, check out these sales-related metrics to keep a tab on revenues generated from the campaign.

1. ROI- Return on investment

It measures how much revenue a marketing campaign generates against the cost of running a campaign. The ROI can be measured against any of the following benchmarks: Industry, Campaign, Overall Spendings and each such factor should have a commercial value attached to it. Every business has its own revenue generation & conversions definition. With every form of conversion, there should be a commercial value.

For ex. a SaaS platform will consider ‘free trial registration’ as a successful conversion. Based on past experience and conversion rates, it’s easy to assign a commercial value to each ‘free trial registration’. Similarly, a B2B marketing campaign will have ‘leads’ as conversion metric. Marketing team will assign a commercial value to each lead in order to calculate the returns on the investment made.

Similarly, conversions can be in terms of views, app downloads, free trials, lead generation campaigns etc. Assigning commercial value against each of above metric will give you ROI from the investments made.

Why does it matter?

“Tracking the ROI tells us whether the advertiser is able to get your money’s worth from the campaigns being run. A positive ROI is a good sign, it tells us that we are bringing more money than you are spending them. It helps us to improve performance & to understand what’s working and what isn’t.”

2. ROAS- Return on Ad Spend

A marketing metric that measures the amount of revenue generated for every rupee spent on digital advertising. Tracking ROAS allows marketers to evaluate the efficacy of their digital marketing campaigns.

Why does it matter?

“The performance can be broken down into the return on a particular ad platform, campaign or ad, allowing advertisers to evaluate where they are achieving the highest level of profitability. A high ROAS is better – which tells us that we are earning higher revenues from the given budget.”

3. Conversions

Conversion is the last stage of the advertising funnel where the user takes a decision to buy a product or avail service. They are the desired goals & the end result of the campaign. It indicates customer interests and takes them a step closer in the buying cycle. Depending on your business type, there are various possible conversions. Some of the main conversions are as follows:

E-Commerce Sales
Lead Generation
Email Sign-ups
Visits to a Key Page

Why does it matter?

“It is a metric that helps us to identify our ad campaign performance. It is important to track these metrics as it indicates sales or intent towards sales and ensure your business remains profitable.”

By keeping your conversion in check, one can understand whether your campaign parameters are aligned with the interest of your audience or not!

If not, one can adjust and upgrade your website, marketing and sales tactics for better profitability. In simple terms, conversion is for measuring campaign success in terms of how much sales or leads our ad campaigns are generating.

4. Conversion Rate

It is the percentage of total visitors that buy a product, avail the service, or complete the desired action in comparison to the total number of visitors. It tells us whether the marketing strategy is working well or not

Higher the conversion rate, the higher the return on investment

Why does it matter?

“The conversion rate tells us whether the marketing strategy is working well or not. If the conversion rate is lower, one needs to revise the strategy. It also tells us which advertising channels are most effective for promoting your business, determining the effectiveness of the copy and using it to make strategic decisions. 

Increasing conversion rate is a positive sign as more & more people are converting to business
Decreasing conversion rate means one needs to change the strategy, as people are landing from the paid traffic and not your target audience.”

5. Cost Per Order

It measures the total cost of advertising for generating a single order. It includes the cost associated with both new and existing customers. Conversion cost and traffic is closely associated with Cost Per Order:

A lower conversion rate can increase the cost per order and a higher conversion rate can lower it.
Cheaper traffic means cost per order is low while expensive traffic raises cost per order.

Why does it matter?

“It measures how cost-effective your marketing efforts are in comparison with average revenue per order. It tells us whether an increase in ad spend would bring more profit or whether one needs to cut back to preserve profit.”

6. Average Order Value

It measures the average rupee spent by each customer per transaction. It is calculated by dividing total revenue by the number of orders.

An increase in AOV corresponds to an increase in profit.

Why does it matter?

“It matters because it helps to analyze the behavior of the customer in terms of how much they are spending on your platform. Analyzing your customer spending helps an advertiser to plan pricing & marketing strategies better.”

Stay tuned for more metrics and a glossary!

About the Author

Namrata Kanjani

Content writer with a knack for finance & stock market. On a journey to wrap emotions around ideas with words & much more.