How Do You Measure Ad Campaigns?

Ads are the most popular form of marketing in the world… but most companies spend years measuring their campaigns the wrong way.

This holds them back from realizing the real growth opportunity they have when advertising.

The Metrics That Matter

There are a lot of metrics you can measure in advertising.

Most of them are what I call “leading metrics”, which is a fancy way of saying that they measure a part of the process that has correlation with more important metrics.

There are only a few metrics that seriously matter:

• Ad Spend
• Customer Acquisition Cost
• Conversion Rate
• Average Order Value
• Lifetime Value

With these 5 metrics, you can at-a-glance know if an ad campaign is or isn’t performing.

Everything else is a “leading metric”.

Ex. Clicks, CPM, impressions, CTR, etc.

If any leading metric is moving in a positive direction that’s great and may indicate that one of the core 5 metrics will also be moving in a better direction. But these leading metrics should never be valued entirely on their own as “success”.

What Does “Good” Look Like?

First of all, most businesses doing less than $50M/year don’t even have a strong grasp on the core 5 metrics. So we need to establish a baseline.

Every business should have some value measured out for each of the 5. If you don’t have these 5 metrics already determined, then you need to do everything in your power to get a real number in place as soon as possible.

Not sure about Lifetime Value (LTV)? Get an accounting audit of all of your customers with churn factored in.

Not sure about Customer Acquisition Cost (CAC)? Run any amount of advertising necessary to establish your initial CAC.

Average Order Value (AOV) and Conversion Rate (CVR) can also be calculated initially by just pushing out your initial ad campaign.

Now let’s say you have your baseline for the core 5 metrics in place. Now the #1 thing to watch is your CAC:LTV ratio paired with your CAC payback period.

CAC:LTV ratio is essentially a measurement of the return you get per customer acquired.

ie. How much does it cost to get a customer, and how much will that customer be worth over the rest of the relationship?

CAC payback period is a measurement of how long it will take you to earn back the amount spent to acquire the customer.

How To Use Your Metrics For Growth

Let’s look at an example.

If you sell a consulting service that profits $500/month and your CAC is $1500, your CAC payback period is 3 months. If your average customer stays with you for 12 months, your LTV is $6000.

So your CAC:LTV ratio is 1:4 (ie. 4X) and you start to profit in month 4.

However, if you can bring your CAC down to $1000 you now have a CAC:LTV ratio of 1:6 (6X) and you start to profit on month 3.

You can only influence these metrics if you have a clear baseline.

And once you know the numbers you can easily predict/forecast your growth when adding additional ad spend or projecting future financials or investment returns.

This is they type of data that makes banks & investors want to throw money at your business because you have a clear measurable line for growth.

It’s also why it feels like most large businesses have an unfair advantage when trying to grow.

They simply know the numbers, and people/institutions are excited to come along for the ride.

Are you building an effective ad campaign?

If you don’t have your baseline OR you’re just not happy with where your numbers are at…

Our team can help. Click the button below to talk with an ads expert who can audit your business and help you find a more sustainable path for growth.