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.