In this post, we’re going to break down the four metrics that matter most, as well as show you how they all intersect together. Let’s dive in
Metric #1: Average Order Value (AOV)
Simply put, the Average Order Value (AOV) is the average amount a customer spends on a single order. In other words, if a lead converts into a customer, the AOV represents how much that customer will spend.
For the sake of this post, let’s say that we’re dealing with a glass company and the AOV is $1,500.
Metric #2: Cost Per Acquisition (CPA)
Cost Per Acquisition (CPA) represents the amount it costs to acquire one paying customer. It’s the amount you have to spend in advertising to bring in a single new customer.
So, for example, if the CPA is targeted at 15% of the AOV, the targeted Cost Per Acquisition is $225.
Metric #3: Conversion Rate (CR)
Conversion rate represents a percentage of people who take a particular desired action, such as making a phone call, signing up for an email list, or even making a purchase.
Let’s say that the glass company has a lead conversion rate of 4%. Put another way, 1 out of every 25 site visitors becomes a lead.
Metric #4: User Value
When you combine the Average Order Value, Cost Per Acquisition, and Conversion Rate, you get the User Value. This figure represents the average value of every single user that visits a website.
It works like this:
AOV x CPA X CR = User Value
For our example, the numbers work out as follows:
$1,500 x 15% = $225
$225 x 4% = $9.00
These calculations tell us that the value of each person who visits the website is $9.00.
Putting All The Numbers Together
So what do these numbers tell you?
First, they tell you how much you can spend for a campaign to be profitable. If you can deliver potential customers (website visitors) for $9.00 per click or less, then you will run a profitable campaign. Remember, the value of every user who visits the site is $9.00, assuming all the other numbers hold true.
Second, they allow you to calculate critical numbers like your Average Lead Value, which is Cost Per Acquisition divided by the number of leads you garnered.
Third, they allow you to compare actual numbers from campaigns to projected numbers and then make adjustments as necessary. For example, if the website is only converting at 3%, all the numbers will need to be adjusted accordingly. You’ll ultimately need to recalculate your User Value and then measure your results against the new number.
Finally, if you know how many leads were actually converted to sales, you can calculate your Return On Ad Spend, which is the amount of revenue you generated for every dollar spent in advertising.
This brings us to the final point.
Ultimately, when you’re running a PPC campaign, the numbers that matter most aren’t the CTR or the number of clicks. The metrics that allow you to make the most informed decisions are Average Order Value, Cost Per Acquisition, Conversion Rate, and User Value. From there, you can monitor and adjust your campaigns, as well as determine your overall Return On Ad Spend.