Paid Ads Metrics
- Tumbuh Digital
- Feb 22, 2024
- 7 min read
After running your first ads on Meta, Google or TikTok, your paid dashboard will be filled with numbers from terms that might seem intimidating - but beginners only need to understand only a few to get a complete picture of how your ads are performing!
It is over simplistic but easier to think of each metric as having its own space on the digital marketing funnel [link]. A potential customer first learns your brand by seeing your ad, clicks it if interested, views your product offering on your website or marketplace, before adding items to the online cart and eventually buying something. Let’s cover the most important metrics from the earliest in the customer journey towards purchases itself.
Impressions
The number of times your ads are shown on someone’s screen, anywhere. Think of the phrase “first impressions” - it is a subconscious idea or feeling planted upon someone’s mind without much thought. In this case, that idea or feeling is generated after seeing your ad.
An impression is counted as one whether it is shown on a person’s main feed or the side of the screen. Those from Instagram Stories or Reels are counted as one alike.
A related metric is the reach, which is the number of different people seeing an ad at least once. With it, we can calculate the frequency, or the average number of times someone sees an ad.
Whom an ad reaches depends on your advertising strategies: bidding, target audience, and targeted placement. We want to generate as many impressions with as little spend as possible, which is evaluated using the metric CPM (Cost per Mille):
In short, CPM is the amount of money required to generate a “Mille” (thousand) impressions. A high CPM would force us to reevaluate our targeting strategies, especially if the high CPM did not result in our objectives being achieved down the funnel.
Example: Spending Rp. 50,000 on an ad set which brought in 10,000 impressions leads to an ad set CPM of (Rp. 50,000/10,000) x 1,000 = Rp. 5,000.
Why “Mille” and not just calculate Cost per Impression? In countries with stronger currency units such as the United States and the United Kingdom, the cost for a single impression might be lower than a single cent. In the above example, Rp. 50,000 is roughly equivalent to $3.30, which means that the cost for a single impression would be $3.30/10,000 = $0.00033 - too many zeros, which might be inconvenient to look at!
Clicks
In most cases, we want our ads to be clicked, so that potential customers are transported to our website or online stores so they might end up buying or at least learn about our offerings.
The Cost per Click (CPC) is a measure of how much money are spent, on average, to get a single click:
No matter how targeted or relevant your ads are, most people will simply not be interested enough to act on it - hence the CPC will not be a number as small as cost per impressions, because the number of clicks will be much smaller than impressions.
Example: Spending $50 on an ad set which brought in 200 clicks leads to an ad set CPC of ($50/200) = $0.25.
Why do people not click on our ads? There are two key reasons:
The target audience is not relevant to our product offerings;
People did not think that the creative is interesting enough to act on it
The latter will usually be a bigger sticking point than the former! Tumbuh’s experts have years of experience in crafting creatives that will attract the eyeball - contact us [link] here for a consultation.
An important ratio more commonly used is the Click-Through Ratio (CTR), which is the percent of times your ad will be clicked when shown on someone’s screen:
This number will almost always be in the single digits, and that’s okay! Most people will not be interested enough to click your ad - especially on social media platforms, where people are looking to be entertained and not spending money.
Example: An ad was shown 100 times, generating 3 clicks. Therefore, the CTR is 3% (a relatively good number!)
Content Views
Once a person clicks an ad, they will usually land on your website or online marketplace store, looking at the products you have on offer. When they are on the product page, one step away from adding it to cart, the action is counted as a Content View.
Using the logic for CPM and CPC, we can also calculate a Cost per Content View (CPCV), with the denominator being Content Views instead of 1,000 Impressions or Clicks.
Note: What about pages showing a collection of products, but not a single product, like this? Whether it counts as a Content View will depend on how your website is configured or how the online marketplace your store is in defines the metric.
Add-to-Cart
If a person is interested enough in the product, they will add them to the digital cart, one step away from checkout. The Cost per Add to Cart (CPATC) is defined as follows:
CPATC is used more often than CPCV, as it signals purchase intent that is close to purchasing. A low CPATC means that something in the product page is discouraging people from thinking of buying - are the product creatives not interesting enough? Are the specifications you wrote not clear? Are your products too expensive? These are all questions a business owner and digital marketer needs to answer.
Example: Spending $50 on an ad set which brought in 5 add to carts leads to an ad set CPATC of $50/5 = $10.
What if a person adds to cart five items of the same product at once - does this count as one or five ATCs? Again, this depends on your website analytics configuration or online marketplace metric definitions. Be sure to understand this if it is common for buyers at your store to buy multiple quantities of the same SKUs at once!
Purchases
The end goal of most marketing campaigns - the customer has completed the checkout process, and Revenue is generated on your end. Of course, your revenue is generally proportional to your ad spend, so the overall performance of your conversion ads is generally evaluated by the Return on Ads Spend (ROAS) metric. For example, for a Facebook ad, it measures how many dollars in revenue does your brand get on average for spending $1 in Facebook ads:
A low ROAS can be caused by any problem in the marketing funnel mentioned throughout this article (e.g too expensive to target current audience or to get them to click), or that there are problems converting interest to purchases on your website. A good digital marketer will look at all these issues holistically and test their proposed solutions methodically to be sure what the problems are.
Example: Spending $50 on an ad set generates two purchases, where one costs $125 and the other costs $75. Then, the total revenue from the ad set is $125 + $75 = $200, leading to a ROAS of $200/$50 = 4 for the ad set.
Finally, Conversion Rate is defined as the percentages of clicks (i.e generated traffic to your store) ended up as purchases:
The denominator of this formula is usually chosen to be clicks, as it covers the half of the customer journey that is now removed from your ads or email creatives.
Example: An ad was clicked 50 times and resulted in 3 purchases. Therefore, its conversion rate is (3/50) x 100% = 6%.
What’s a Good Number for These Metrics?
The metrics representing customer actions are obviously proportional to your ad spend. Instead, the financial metrics and ratios like Frequency and CTR are better to use to compare campaigns against each other or available benchmarks. Here is an example of benchmarks for some metrics as well as their diagnosis:
High Frequency: People are seeing your ads too often.
Benchmark: Facebook notes diminishing returns at frequency higher than 3.4, but it does not always need to be addressed.
Suggestions: Widen targeted audience, set frequency cap, exclude people who interacted
Low CTR: Your ads are being seen but not clicked.
Benchmark: 1.32% for Facebook, 0.58% for Instagram.
Suggestion: Test multiple creatives and captions to see what works.
Low Conversion Rate: People did not end up buying.
Benchmark: Varies by industry and platform, ranges around 1-4%.
Suggestion: Change product description / creative, introduce discounts, etc.
ROAS < 1: Your ads are not breaking even.
Benchmark: Most businesses aim for at least 2, though it varies by industry and ad objective.
Suggestion: Start by looking at the drop rates to identify where the problem is.
Ultimately, be careful when looking for benchmarks online! There are a few things to consider:
Platforms: Some platforms are geared for purchases, whereas others are meant for entertainment.
The conversion rate of ads in online marketplaces such as Amazon, Tokopedia or Shopee will be higher than ads in Facebook or TikTok.
The CTR of search ads will be higher than standard ads, since they target people who are already intent on searching for products.
Objectives: Ads are prioritized to maximize their target metric.
For example, ads with the “awareness objectives” will get a lot of reach, but are likely to achieve a poor ROAS.
Being specific with your audience targeting are also more likely to drive up your CPM, although this is justified if you ended up with a higher audience quality.
Seasonality: Ads will be more expensive during more festive periods such as payday, Thanksgiving, Ramadhan or 12/12.
During periods of high competition, expect CPM to worsen as well.
Though difficult to find, your ideal benchmark should be dependent on the country and industry you are in. From Tumbuh’s experience, ads in Indonesia, for example, are much cheaper than those targeting the American market, whereas Food & Beverage or Fashion industries are likely to have cheaper ads than those in the luxury or electronics market. Since companies are unwilling to disclose their ads data publicly, experienced digital marketers are required to understand whether the numbers above are better than market averages. But if you don’t have any benchmarks available, don’t worry! Compare your results to your previous ads, and aim for incremental improvements every time you iterate on them.
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