6 Key Performance Indicators (KPIs) to Watch in Paid Advertising

August 13, 2020
3 min

When engaging in paid advertising campaigns, measuring your success is essential. In this post, we’ll explore 6 key performance indicators (KPIs) that you’ll want to evaluate for every advertising campaign.

1. Cost per Mille (CPM)

In advertising, CPM stands for cost per mille (mille is Latin for thousand) and is used to calculate the cost per 1,000 impressions. For example, if you pay $2 CPM, that means you pay $2 for every 1,000 impressions of your ad. Use the following formula to calculate CPM.

CPM = (Cost to the Advertiser ÷ Number of Impressions) x 1000

When considering CPM, it’s important to understand the audience you are getting impressions from. If your campaign is sending impressions to people who aren’t in your target audience or are outside of your industry, then you’re wasting money delivering your message to people who are unqualified to buy. To avoid wasted budget, make sure that the “number of impressions” part of the equation is narrowly targeted to the audience you are trying to influence.

2. Open Rate

When you’re sending email through an advertising partner, open rate is one of the top KPIs you should consider. Use the following formula to calculate open rate:

Open Rate = (Emails Opened ÷ Emails Successfully Delivered) x 100

Before you deploy your campaign, make sure you understand email open rate benchmarks for your media partner. Work with your partner to optimize open rates by deploying A/B tests on subject lines and ask for redeployments to unopens with new A/B tested subject lines. This will help you get the most out of your advertising spend.

After email deployment, collect this open rate information for your reporting and performance analysis. If email open rates are low, look at the time of day sent, subject line, or day of the week sent for adjustment and future optimization.

3. Click-Through Rate (CTR)

Click-through rate is also important to consider when using email as part of your advertising strategy. Next to open rate, it’s one of the most-referenced KPIs in email marketing. Use the following formula to calculate click-through rate.

Click-Through Rate = (Emails Clicked ÷ Emails Successfully Delivered) x 100

As with open rate, it’s important to understand your partner’s benchmarks on CTR before you deploy your email. This will help you with more accurate campaign planning. For example, if you deploy your email to 10,000 people and get an open rate of 20% and a CTR of 5%, then you can expect 100 people to visit your target content. It’s important to understand benchmarks before you deploy, and that you have a plan for optimizing opens and clicks through A/B testing and redeployments to unopens.

If your CTR is lower than expected, look at your creative. Common culprits of low CTR are unclear call-to-actions (CTA), complex messaging, or buttons that are located too far down in the email. Consider user experience and evaluate the performance of your email on mobile devices, where data suggests at least half your audience is likely viewing your message. For redeployments, simplify your CTAs and move them up in the email to prevent unnecessary scrolling.

4. Cost per New Lead

Calculating cost per lead can help you determine your overall customer acquisition cost associated with a campaign. It’s often helpful to take this a step further and calculate the cost per each new lead you add to your database. If your goal is to generate new leads, then you’ll want to work with your advertising partner to make sure you’re not spending money to target an people who are already in your database. Use the formulas below to calculate cost per lead and cost per new lead:

Cost Per Lead = Campaign Spend ÷ Leads Generated

Cost Per New Lead = Campaign Spend ÷ New Leads Generated

If your goal is to generate new leads instead of activating existing contacts in your database, you’ll need to plan this at the beginning of your campaign to ensure your partner is targeting the right audience to accomplish your lead generation goals.

5. Campaign Sales Revenue

Ultimately, everything we’re doing to optimize our campaign performance is in pursuit of campaign sales revenue. Leverage your CRM to track this information. To effectively track campaign sales revenue, you’ll need a method of collecting leads and associating them with the appropriate marketing campaign, and then you’ll need a way to track the associated campaign pipeline of sales opportunities.

6. Marketing Campaign ROI

Finally, you’ll want to calculate your campaign return on investment (ROI). Use the following formula to calculate your campaign ROI.

ROI = (Sales Revenue Generated – Campaign Cost) ÷ Campaign Cost

Track your campaign ROI for different types of campaigns to identify where you can make your marketing dollars work the hardest.

Analyzing campaign performance is key to marketing that converts. Keep a close eye on these 6 KPIs, and never stop optimizing.