Term
| Formula
| Details
| Example
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CTR - Click-through Rate
| (Number of clicks / Number of views) X 100
| CTR is used to calculate campaign overall performance.
| In a campaign, if your ad was shown 3000 times to audience and it received 75 clicks to the landing page. The CTR is (75 / 3000) X 100 = 2.5%. The higher the CTR, the more successful the campaign can be considered as.
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CPM - Cost per Mille
| CPM = (Cost to an Advertiser / Impression) X 1000
| CPM model of online advertising is used for brand awareness and exposure for a newly established brand.
| Suppose, an ad received 5500 impressions. The advertiser decided to spend GBP 25.00 for the campaign. The cost for a thousand impressions would be (25 / 5500) X 1000 = GBP 4.5 which means that the advertiser agreed to pay US$ 4.5 for every thousand views.
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CPC - Cost per Click
| CPC = Cost to and Advertiser / Number of clicks
| CPC is widely used model; the advertiser needs to pay for each click instead of impression.
| Suppose, you’re running an ad campaign for one of the eBooks that you sell online. You chose the CPC model. How much would you have to disburse for the campaign? Consider the number of clicks and the amount you’d like to spend on each click. If the number of clicks you received is 150 and the CPC is GBP 2.2, the total cost to you is GBP 275.00 That’s how it works.
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CR - Conversion Rate
| CR = (Number of Conversion / Number of Clicks) X 100
| If your online marketing campaign’s goal is only to generate revenue.
| Let’s assume that ABC company sells shoes through an electronic shop. It ran an ad campaign on Facebook and an ad received 250 clicks. The advertising was happy seeing the CTR. But much to his surprise, the number of conversions on the website was only 1 meaning that only 1 product was sold during the time the ad was live. The conversion rate is (10 / 250) X 100 = 4% which seems to be pretty low.
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CPA - Cost Per Action/Acquisition
| CPA = Cost to an Advertiser / Number of Conversion
CPA = Cost to an Advertiser / (Number of impression X CTR X CR)
| In the case of CPA, an advertiser will only pay when a conversion takes place regardless of the number of impressions an ad receives or the number of clicks it generates. For a revenue-generating business, CPA is of much importance.
| Suppose XYZ Inc. sells laptops through its website. It ran an online ad campaign where one ad promoting a newly arrived model of laptop was viewed 3000 times by the target Audience. The number of clicks it received, however, was 150 and there were 15 conversions.
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CPL - Cost Per Lead
| CPL = Cost to the Advertiser / Number of Leads generated from the ad
eCPM – Effective Cost Per Mille
| When the marketers’ campaign goal is to generate leads. This is similar to CPA, except the campaign goal.
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eCPM - Effective Cost Per Mille
| eCPM = ( Total Earning / Total number of Impression ) X 1000
| Determines the revenue generated from a thousand impression of a specific ad, unlike the actual CPM which determines the cost to the advertiser for a thousand impression of the same ad.
| Suppose a company generated US$ 50 in revenue from an ad and the total number of impression the ad received was 10000. The eCPM is (50/10000)X1000 = US$ 5 which means that for every thousand impressions, the company earned US$ 5 in revenue.
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eCPC – Effective Cost Per Click
| eCPC = Total Earning / Total number of Clicks
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eCPA – Effective Cost Per Action
| eCPA = Total Earning / Total number of actions
| Determine the total revenue generated by an ad for each action taken on the website. It’s used to calculate how effective a CPA campaign is.
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ROI – Return on Investment
| ROI = (Total Revenue – Total Cost) / Total Cost
| It is important to know the monetary benefit (in our case, the revenue) earned against the money invested to acquire it.
| Suppose an eCommerce store has generated US$ 2000 from an online advertising campaign and disbursed US$ 500 on the campaign. The return on investment is (2000-500)/500 = US$ 3 which is 300% of the cost when converted into a percentage. 300% return on investment is pretty high but it is also true that achieving a high ROI is not easy. We can state that for every dollar spent on the campaign, the business generated US$ 3.
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LTV - Life Time Value (Added by Domingo Cordero)
| Cost per Click / Conversion Rate < Life Time Value
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| For example, if the LTV (Life Time Value) for ABC company is $500 and a CR (Conversion Rate) = 2%. We should not expense more than $10 CPC (Cost per Click) $10 / 2% =$500
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Ad Rank
| CPC Bid * Quality Score
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| This helps in determining how prominently your ads are displayed in a SERP
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ROAS – Return on Ad Spend
| Return on Ad Spend = (Revenue/Spend)
OR,
(Revenue + Goal Value) / Cost
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| If I spent $10,000 on paid search in October and generated $50,000 in revenue, the ROAS for paid search is $4:1. ($50,000/$10,000= $5)
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