How to Measure Online Marketing Success

On our previous blog post How to Promote Your Small Business Online, we talked about the different types of online marketing campaigns available. Today we will go over the different metrics you can use to track the success of your Internet marketing programs.

If you’re new to web marketing, there is one key thing you need to know: tracking is everything. Internet marketing offers you an inexpensive way to effectively promote your business if you know what metrics to use, which will highly depend on your campaign’s goal. Read along to discover more about CPM, CPC, CPL, CPA, CTR and conversion rates.

Cost Per Mille (CPM)

Cost per thousand impressions. Mostly used when discussing display advertising, CPM relates to the number of times your ad will be displayed (or “impressed”) in the website where you purchased the advertising space.

It isn’t easy to calculate an average CPM, as it widely depends on the format of your ad (banner vs text-based) and the industry you’re in. According to Tig Tillinghast from ClickZ, the average CPM, as negotiated and presented to the client, is approximately $11. An interesting industry development is that recent studies show text-based CPM ads often receive more attention that traditional banner ads. An article on AllBusiness.com goes on to say “the average view time for a text-based ad averaged 7 seconds, while a graphical ad only averaged 1.6 seconds.”

If you’re using CPM as your metric of choice, keep in mind that the number of times your ad shows up in the website is not necessarily the frequency which your ad will be viewed by your audience. Negotiate your ad space in the website to ensure you won’t get stuck with a banner at the end of the page. You can ask your advertising provider to show you a click or site overlay map of the webpage you’re considering for your ad, which will show you where users click the most.

Cost per click (CPC)

Cost per each click on your ad. This metric is typically used for display advertising. The advertising provider should be able to supply you this number. If not, you can calculate it post-campaign, by taking the total money spent on that program and divide it by the total number of clicks generated.

As with CPM, it is very difficult to point out a specific average CPC. Efficient Frontier recently published a study with the average CPC for the automotive, finance, retail and travel industries, where we can see a wide variation of cost per click, from $0.35 for retail to $1.33 for finance.

If you’re not a newbie to CPC and use Adwords, I strongly recommend reading the PPC Hacking blog, particularly the post Dangers of AdWords Average CPC.

Cost per lead (CPL)

Cost per each lead or per prospect generated, either from an ad or landing page with a contact form, or from your website. A lead can be anything from your prospect’s email address for a newsletter to your potential customer’s complete contact information, such as first and last name, title, company name, address, phone number, etc.

This metric is one of the most important used on B2B campaigns, and can be easily calculated by dividing the total money spent on a specific campaign by the total number of leads generated from that program.

Pontiflex released a benchmark study on the average cost per lead by industry for 2008/2009, where the cost for a basic lead (user’s first name, last name, e-mail address and postal address) averages $0.60, with a premium lead (basic lead plus telephone numbers, social networking usernames, and custom questions) costing an average of $2.27.

Cost per acquisition (CPA)

Cost per new customer acquired. CPA is one of the most difficult metrics to calculate in online marketing, since you need to be able to track the time spent nurturing a lead, as well as the number of campaigns your prospect has been exposed to before closing the deal. To calculate a campaign’s CPA, divide the total money spent on one campaign per the number of customers generated by that program.

Due to the nature of this metric, there is no overall average CPA. The cost per acquisition will highly depend on the nature of your product and price tag (for instance, the CPA for an anti-virus software is likely to be much lower than for a piece of real estate). We recommend our customers to build their own average CPA – overall and by program – as soon as possible, so they have a tangible metric when considering new online marketing programs.

Click-through rate (CTR)

Percentage of users that click on a specific link. Mostly used in display advertising, you can also apply CTR to assess the performance of your website (measuring each page’s CTR) or to evaluate an ad (taking the number of people that received your newsletter or visited the website, and dividing it for the number of users who clicked on your link).

On the average CTR, an in-depth article from March 2009 by eMarketer puts this number below the 0.5% mark, with video ads taking the prize home with an average conversion of 1.7%.

Conversion rate

Percentage of users that fulfilled your desired action. The conversion rate will highly depend on the goals of your campaign, and can be calculated by dividing the number of goal achievements by the total number of visits to your website. For instance, if the purpose of your campaign is to generate leads, then the conversion rate will be the total number of leads generated divided by the total number of (unique) visitors to your landing page.

Because different campaigns have different goals, conversion rates can vary significantly. According to a 2007 Forrester Research study, the average conversion rate for e-commerce websites is 2.9%. Reports on the web put the average conversion rate for B2B and other non-ecommerce websites between 6 to 8%.

What metrics are you using to track your online marketing campaigns? Which ones do you believe work the best?