If you or your business is planning to begin a pay-per-click advertising campaign, you should have a grasp on the key performance indicators (KPIs) that can offer all kinds of insight into how well your campaign is performing. By measuring these KPIs over time, you’ll be able to understand how performance is impacting your goals and whether or not this investment is paying off.
Impressions
Impressions are the number of times an ad is displayed on search pages – quite literally how many pairs of eyeballs are seeing your ad. Many consider this KPI to be top-of-the-funnel and, perhaps, less meaningful than some of the others. However, without impressions, there can be no clicks and certainly no conversions. Getting the right kind of exposure for the right price is the foundation for performance across all other KPIs.
At it’s most basic, the click-through rate measures how often users are clicking on it. Here’s the formula:
Clicks / Impressions = Click-Through-Rate
Your click-through-rate is important because it shows how closely your content relates to a particular keyword or set of keywords. The more relevant your ad is, the more clicks it should get. Search engines like Google place a lot of weight on CTR, because it demonstrates the human interaction between person searching and the results of that search. It provides natural data over mathematical calculations.
Conversions
A conversion can be defined in many different ways but, at it’s core, it’s simply any type of user action. A click can be considered a conversion – the user did something. In the scope of PPC, conversions more widely encompass any actions taken by consumers after they’ve clicked. For example, after clicking your ad, did the user fill out a form, consumer content, or make a purchase? All of these would be considered conversions.
To measure the frequency and value of those conversions, as well as how often your PPC ads are the source of those conversions, you can use Google Adwords and Google Analytics. In theory, here’s how you can expect Impressions and Clicks to impact Conversions:
More Impressions = More Clicks = More Conversions
Understanding how these metrics are connected and impactful of each other is an ongoing process. For example, the ideal and most efficient PPC campaign scenario would be to increase conversions while paying for less clicks. When this happens (and it can over time) this means you’re getting your ad in front of quality consumers. And we all know that quality beats quantity.
Conversion Rate
The conversion rate is measured like the click-through rate:
Conversions / Clicks = Conversion Rate.
The higher your conversion rate, the better your ads are performing for you. A healthy conversion rate ranges from 2 to 3 percent – meaning that 2-3 percent of the people clicking on your ad will convert in some way.
Ad Position
The ad position refers to where your ad is displayed on a search engine results page. The higher your ad position, the more likely users are to interact with it.  There are several ways to increase average ad position, but the most common way is to increasing bidding on specific keywords.
Cost-Per-Click (CPC)
Here’s our final formula:
Total Ad Spend / Clicks = Cost-Per-Click
CPC tells you the average amount you’re paying each time someone clicks on your ad. The average CPC can help you understand if what you are paying for ad space is actually worth your investment. A successful CPC is individual to each campaign, and relies heavily on what your acceptable return on investment is. Your advertising budget is what will ultimately determine how well your CPC performs. If your CPC isn’t where you would like to see it, you may need to review your bid prices and adjust your keyword bids.
Once you understand KPIs and how they work for you, the next thing you need to do is optimize that information. There is a multitude of ways to analyze and optimize your KPI data. If your goal is to increase conversions, you may need to remove any irrelevant keywords or determine the keywords that provide the most results. If you want more impressions, you can increase the volume of keywords or include more generic keywords. Having a hand on this information is vital to any pay-per-click advertising campaign, and it is important to know how to interpret this data
