Pay Per Click Metrics

by Steve Loszewski, 3/30/2006

To practically gauge the success or failure of a pay per click account, advertisers need to understand certain metrics and what they mean. Here is a simplified account on pay per click campaign optimization, focused on three factors - keyphrases, ads, and landing pages - and three metrics - click-through rate, cost per click, and conversion rate.

Keyphrases, Ads, and Landing Pages

Good accounts optimize keyphrases, ads, and landing pages. This is somewhat of an abbreviation for different reasons. For example, "keyphrases" could more accurately be referred to as "keyphrase matches," since an ad gets shown for different query matches and not necessarily different keyphrases, and ads and landing pages could be broken into more elements, since these terms encompass separate important factors. These three elements, however, provide a good basis.

A user makes a query, your keyphrases determine whether an ad is shown, the ad determines whether the user sees the landing page, and the landing page determines whether the user makes a transaction.

Click-Through Rate (CTR)

CTR is affected by keyphrases and ads, landing pages have very little if anything to do with this metric. Given constant keyphrases, an improvement in CTR means that ad text or position has "improved." "Improved" means the ad text captures the attention of the user better, offers something the user is interested in, or is in a higher position. This does not mean that the ad is more profitable. Given constant ads, an improvement in CTR means that keyphrases are more relevant to ads or new keyphrases are tapping into a more interested group of searchers. This also does not mean that the ad is more profitable.

Advertisers who are looking to improve their campaign's CTR and who have a profitable conversion rate are trying to get their ads to do more work for them, getting more users to the landing page and possibly reducing costs in Adwords. Advertisers might also use CTR as a general indicator of a landing page's conversion rate. Roughly, if an ad accurately describes what is on a landing page, this might be an acceptable assumption, but advertisers really shouldn't rely on this assumption. CTR and conversion rate should be treated as independent metrics. Advertisers might also try to improve CTR to reduce costs in Adwords since this is a factor in an ad's quality score. The relation here is also complicated. Generally, the goal is to find more specific or less competitive keyphrases, or write better ad text.

If a keyphrase-ad-landing page combination is profitable, advertisers might try to improve click-through rates. If the combination is not profitable, advertisers should focus on decreasing cost-per-click or increasing conversion rates.

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