Misused AdWords Metrics for Retail Marketing

AdWords provides advertisers a ton of metrics — 46 campaign-level columns alone.  Some are critically needed; many are used incorrectly. Sure, an astute in-the-trenches marketer may have a use for most when tasked with optimizing the retailer for profitability, but many of the most popular are traps when optimized on their own.

There is really only one metric of success with retail ecommerce: profit.  All other metrics are subservient.  What follows are some frequent errors retailers make when interpreting common PPC metrics.

CPC

Cost-per-click is the most in-your-face metric… it’s really the name of the game.  Yet CPC only matters in relation to two other, far more important metrics: conversion rate and value per conversion.  You shouldn’t be optimizing for cost, but profit.  CPC may rile you up, but it’s a slave to your other metrics.

CTR

Ad click-through-rate is the most  unappreciated metric.  While CPC’s are largely dictated by your industry, CTR is determined by your own marketing & copywriting prowess.  It isn’t helpful to think in terms of “good CTR”.  CTR can always be improved… indeed, successful retail marketers are constantly split-testing ads to boost CTR.  When CTR increases, you can take the benefit in either lower CPC’s or higher ad position.

Average Position

Your ad position determines your volume of traffic for any given keyword.  To coin a new acronym, this is a KIMBI metric: “keep in mind but ignore”.  Your average ad position falls in line with your CPC, which itself falls in line with your CTR.  So, assuming every other metric stays the same, and you can’t afford to spend any more money while maintaining profitability, you can only sway your average position by increasing your CTR.  As such, average position is helpful when trying to see how much more traffic is out there if you were ranked higher, but isn’t a metric you can sway directly.

CPA

Now we arrive at the most misused metric for online retailers: cost per acquisition.  It sounds so top-level and important.  If ever their was a critical KPI, this is it — right?  For online retailers with hundreds, thousands, or tens of thousands of SKUs, it is absolutely the WRONG metric to track.

Target CPA is great for lead generation, where all leads have a similar likelihood of closing at a similar value, but online retailers have products with huge price and margin differentials.  It may be fine to spend $20 per sale on some items, others will lose money at that level, while high-ticket items can handle much more aggressive marketing spend.

The reality is that retailers often don’t have a sophisticated enough marketing program to tie margin back to each sale in AdWords.  So CPA is thus the easiest proxy.  Treat it as such.  Don’t religiously hold to a CPA target at the expense of true profit in AdWords.

Value

Did you know you can pipe transaction value into AdWords for every sale?  Even more illuminating is to pipe-in margin instead of raw transaction value.  This is the holy grail of AdWords management.  Value/Cost turns all the lights on.

Tagged Metrics