Does Online Advertising even work? Are the ads worth the money?
Should I post my collection of goofy t-shirts as proof?
Oh, you want an explanation.
Digital Marketing companies use many confusing words, talk rather rapidly, and move on to something shiny when asked this question, because it can be difficult to answer. Initial investments can take time to work and consumer behavior can be unpredictable.
The world does not have room for “consumer behavior can be unpredictable” on a balance sheet, so online advertising companies have come up with numbers for success. The big number that everyone ultimately cares about is ROI or Return on Investment. This number tries to show a business how much money is made or lost on an advertising campaign.
Return – Cost=ROI
Digital Marketing Companies often know the cost of the advertising campaigns because it’s on their invoice. They do not typically know the return value because this happens with the sales team when they make contact with the lead.
The best way to solve this would be to have your sales team work closely with the Digital Marketing Company, so they can compare notes and create a great report. This is not always possible and marketing companies have developed other measures of success that can be nicely packaged and sent off to the customer who should have all the other pieces to create an accurate picture of ROI.
It sounds so easy. I just send you a long list of confusing numbers with confusing acronyms next to them, and you combine those numbers with your own long list of confusing numbers and everyone pretends they know what is going on.
We break it down into something simple.
Advertising costs are tied to consumer actions, because that’s what you are paying for. You pay when they see the ad, when they click on the ad, and when they interact with the ad.
When they see your ad.
Ad views are called Impressions by most advertising platforms. They are typically charged per thousand. On the balance sheet, companies often use the acronym CPM. The M stands for the latin word mille, which means thousand in Latin. Why are we using Latin? It’s weird but that’s how it is done.
When they click on your ad.
Ads that are charged with a Cost per Click or CPC are usually used to drive traffic to a page on your website. You are charged when they click on the link.
When they interact with your ad.
Ad interactions such as completing a sign up form, calling a phone number, or commenting are called Engagements. Cost per Engagement or CPE are the costs associated with this.
The hope is that out of the people that have viewed, clicked on, and interacted with your ads, a group will buy your product or service. Those sales are your return on your digital advertising investment. This is why it’s a good idea to find out how your customer found you. If you don’t know this, it’s impossible know what the return is on your investment.
If you pay $1000.00 for digital marketing, whether its CPE, CPC, or CPM, the way to figure out what that money netted in return is the same. The sales team should know how a customer found out about the company. Let’s say they tell you that five customers saw the ad and all five bought $300.00 worth of stuff. Your company made a total of $1,500.00 in sales off of a investment of $1000.00. Your ROI or return on investment is $500.00. You made 50% return.
In reality the math is rarely this neat. Often it may take multiple campaigns to generate a return. Successful ad campaigns are often a combination of a well created ads, funding to support those ads, a product or service people want, and an effective sales team.
Our hope is that we have demystified these numbers somewhat. Let us know if you have any questions.