Marketers spend a lot of time sharing and defending the results of campaigns and activities. Stakeholders and leaders constantly ask: “What results did this drive?” “Where can we cut our budget?” “What can we optimize?”
To answer these questions, marketers must navigate metrics from vastly different sources that span tools, dashboards, and even authors (a custom report an agency composes may vary dramatically from the tables a chief marketing officer pulls). Each source will emphasize different data and calculations — impressions, engagement rate, click-through rate, return on investment, and more. Misunderstanding or misinterpreting numbers at any stage can have a severe impact on your business.
That’s where the Scale and Efficiency Metrics Framework — one of many tools you can use to plan and optimize marketing campaigns — comes in. There are two types of metrics typically used by marketers: scale metrics, which indicate sums or volumes (e.g., number of website visitors), and efficiency metrics, which indicate rates or ratios (e.g., return on investment). Knowing the value of each type of metric helps you think about how to scale and optimize your marketing activities.
The premise of the framework is that all scale metrics fall into one of four buckets:
- Cost measures how much is spent on a campaign, including agency or ad fees.
- Reach measures the number of people contacted through impressions, visitors, video views, and so on.
- Response determines whether or not audience members take the actions you want them to take through metrics like clicks, swipes, or completed views of a video.
- Revenue measures the amount of money made, as in total revenue or lifetime customer value.
An efficiency metric is the ratio of two of those buckets (i.e., one bucket divided by another), and each one tells you something different. By breaking down reports into these buckets and metrics, it’ll be easier to compare how you did across different channels and prioritize which channels to invest in further.
You can use the Scale and Efficiency Metrics Framework to:
- Compare metrics across different channels.
- Understand the impact marketing efforts have on growth.
- Determine the cost and efficiency of growth.
Now, let’s take a closer look at some of these metrics and how you can leverage them to optimize your marketing strategy.
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How to Use Scale and Efficiency Metrics Together
Armed with a clear metrics strategy, marketers can create and refine campaigns that focus on reaching a specific outcome and make smarter business decisions when allocating or requesting budget. Metrics are also powerful tools for persuading stakeholders to devote funds toward future marketing efforts.
As we mentioned previously, scale metrics measure volume. They are useful in understanding figures like how many people a campaign reached, how much money users spent on your product, or how much you spent on ads. They are also helpful in analyzing the success of a campaign, can be used to validate hypotheses, and are an effective way to measure growth over time.
At their core, efficiency metrics are numbers that indicate effectiveness. These metrics are always rates or ratios and are often expressed as a percentage.
5 Key Efficiency Metrics
Cost per Reach
Wondering how far your money stretches to reach your audience? Cost-per-reach metrics indicate the cost-effectiveness of a media channel or partner. They’re helpful in guiding how much money to invest in the various platforms on which your campaign runs.
The most common cost-per-reach ratio is cost per mille (CPM), or the cost per thousand impressions. This is a useful metric to have when planning the budget required to achieve a target reach. A social media marketer might use it to gauge the success of a Facebook ad in a brand awareness campaign.
The formula for calculating CPM is Cost ÷ Impressions x 1,000. For example, if you buy 50,000 impressions for $250, your CPM is $250 ÷ 50,000 x 1,000, or $5.
Response per Reach
Response-per-reach metrics help determine what percentage of audience members who could have taken a desired action actually did. For example, of all the people to whom you showed a banner ad, how many clicked on it?
Prevalent response-per-reach metrics include:
- Engagement rate, which indicates the percentage of viewers who see an ad and interact with it in any way. It’s typically used for interactive media and social ads. The most common engagement rate formula is Interactions ÷ Impressions x 100. For example, if you had a social ad that generated 100 impressions, three likes, and five shares, your engagement rate would be 8 ÷ 100 x 100, or 8%. However, it’s important to note that there are multiple ways to look at engagement rate. Some marketers use reach or followers as the denominator in place of impressions.
- Click-through rate (CTR), which is the percentage of people who were exposed to an ad and then clicked on it. The formula for calculating CTR is Clicks ÷ Impressions x 100. For example, if you ran a Facebook News Feed ad that generated 3,000 impressions and received 50 clicks, your CTR would be 50 ÷ 3,000 x 100, or 1.67%.
- Conversion rate, which is the percentage of people who had the opportunity to complete an action you defined — and did.
This metric requires context to pinpoint the best version of the formula to use. To calculate the conversion rate for prospects who clicked on an ad, or what’s known as a post-click conversion rate, the formula would be Conversions ÷ Clicks x 100. To measure the percentage of site visitors who convert, regardless of traffic source, your visitor conversion rate would be Conversions ÷ Visitors x 100. Adjust the denominator based on the context that makes sense for your campaign.
Cost per Response
Marketers can pinpoint which channel or tactic is most cost-efficient in driving results with cost-per-response metrics. Typically, these metrics are measured as a ratio of cost per (X), or CP(X), with X indicating an action.
Here are a few examples of how they may be calculated across different contexts:
- Search: cost per click
- eCommerce: cost per order
- Apps: cost per install or cost per download
- B2B: cost per lead
- Video: cost per completed view
To calculate any of these metrics, divide total ad spend by number of X, where X equals leads, clicks, orders, or whatever you are tracking. For example, if you spent $10,000 to acquire 200 leads, your cost per lead is 10,000 ÷ 200 or $50.
Be mindful of quality when focusing on CP(X) metrics. For instance, if you’re comparing cost per click across multiple platforms, one may clearly outperform the other. But, when you dig deeper, you may see that the lower performer actually drove more high-quality leads.
Revenue per Response
Cost-per-response performance metrics help determine which tactics and campaigns are most cost-effective — but their uses are limited on their own. If you don’t know how much those “responses” are worth in terms of revenue, you won’t know how much expense is too much.
This is where revenue-per-response metrics come in.
If a Facebook campaign runs at a $30 cost per download (CPD) and a search campaign runs at a $50 CPD, your instinct might be to stop spending on search and move that budget to Facebook. However, you won’t really know whether or not you need to stop spending unless you know how much an app download is worth to your business. If a download results in $51 of revenue (a $1 profit per download), it may still be worth running search ads to reach a wider audience than you could on Facebook alone.
In other words, you won’t always want to go with the lowest “cost per” available, as scale comes into play.
One common revenue-per-response metric is average order value (AOV) — the average size of a purchase on a website or app. For retail and eCommerce businesses, average order value will be a key metric.
The formula is Revenue ÷ Number of Orders. So, if you made $10,000 from 50 orders, your AOV would be 10,000 ÷ 50, or $200.
Return on Investment
Ah, the holy grail of marketing: The ability to say exactly how much incremental revenue was generated by the marketing campaign! You’ll often hear ROI tossed around in discussions surrounding the overall efficacy of a marketing strategy and the bottom line.
The formula for return on investment (ROI) is expressed as a percentage and calculated as (Revenue – Cost) ÷ Cost x 100. For instance, if you generated $200 in revenue from a Facebook ad and you spent $125 on it, then your ROI would be (200 – 125) ÷ 125 x 100, or 60%.
Sometimes, return on ad spend (ROAS) is used instead of ROI. ROAS does not subtract the cost from the numerator. The formula here is simply Revenue ÷ Cost x 100.
Applying the Scale and Efficiency Metrics Framework
Now that you’ve grasped the basic principles behind this framework, it’s time to apply them to a marketing campaign.
Let’s say your plan involves Facebook and YouTube campaigns driven by your in-house team, plus a programmatic display campaign implemented by an outside agency. For each of those channels, you want to determine:
- What you spent.
- How many people you reached.
- What kind of response you got from that reach.
- Whether there was a direct revenue outcome.
The metrics outlined in this framework help you answer those questions for each channel. Once you’ve calculated and compared the results, you may discover that your cost per acquisition is much lower on Facebook than on other channels. Based on this information, you may want to investigate why this campaign is performing so much better than other channels. (Is it the creative? The targeting? Or were the viewers on Facebook also exposed to other channels?) This can help you make optimization decisions that will improve your overall ROI.
More Ways to Organize and Optimize Your Marketing Strategy
The Scale and Efficiency Metrics Framework is just one of many tools you can use to organize goals, prioritize approaches, create effective campaigns, determine which data to focus on, and more. In our free, exclusive paper, Campaign Essentials, dive into three more valuable frameworks commonly used throughout General Assembly’s digital marketing programs. Each framework serves a different purpose in focusing, planning, executing, and optimizing your marketing campaigns.
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