Why ROI is the most important KPI for campaign success
Key Performance Indicators, or KPIs for online advertising, are measurable values that help assess the progress or success of a campaign by evaluating specific objectives or goals. KPIs are used to track performance and provide a quantifiable measurement of critical factors that are essential for the success of a campaign. KPIs are important because they provide actionable insights, facilitate performance monitoring, and help align efforts toward desired outcomes. By setting and tracking relevant KPIs, you can measure progress, identify areas for improvement, optimization and make informed decisions to drive success. But what KPIs make a campaign successful? In this article we ask the question: Why is ROI the most important KPI?
What are the main KPIs for online advertising?
The main Key Performance Indicators (KPIs) for online advertising vary depending on the specific goals and objectives of the campaign. However, here are some commonly used KPIs and their significance:
- Impressions: Impressions represent the number of times an ad is displayed to users. It indicates the potential reach and exposure of the campaign, although it doesn’t provide information about actual user engagement or conversions.
- Cost per Acquisition (CPA): CPA measures the cost of acquiring a customer or lead. It helps advertisers evaluate the efficiency and cost-effectiveness of their campaigns in driving conversions.
- Conversion Rate: Conversion rate measures the percentage of users who complete a desired action, such as making a purchase, filling out a form, or subscribing to a newsletter. A higher conversion rate indicates better campaign performance and effectiveness in driving desired user behavior.
- Click-Through Rate (CTR): CTR measures the percentage of users who click on an ad after viewing it. It provides insights into the ad’s appeal and relevance to the target audience. While CTR alone doesn’t guarantee success, it can indicate the initial engagement and interest in the ad.
- Return on Ad Spend (ROAS): ROAS measures the revenue generated for every dollar spent on advertising. It helps advertisers understand the effectiveness of their campaigns in driving revenue and optimizing their advertising budget allocation.
- Return on Investment (ROI): ROI measures the profitability of an advertising campaign by comparing the revenue generated or costs saved to the amount invested. It provides a clear picture of the campaign’s effectiveness in delivering a positive financial impact.
These KPIs are important for online advertisers as they provide insights into the performance, effectiveness, and financial impact of their campaigns. By tracking and analyzing these metrics, advertisers can make data-driven decisions, optimize their strategies, and allocate resources efficiently to achieve their desired marketing objectives.
Which is the most important KPI for online advertising?
The most important KPI for online advertising ultimately depends on the specific goals and objectives of the campaign. There is no one-size-fits-all answer to this question as different businesses and campaigns may prioritize different metrics based on their unique needs.
One confusion, especially for newbie advertisers, is thinking that the CTR (Click-Through Rate) is the most important KPI when evaluating a campaign. If the campaign is generating a high CTR this shows that:
- The ad campaign creative is generating clicks
- The offer is popular and generating interest
- The traffic being targeted and ad zone is of high quality
- The ad format selected is working for the campaign
However, although CTR is a good campaign measure, ROI (Return on Investment) is more important than CTR because ROI measures the effectiveness and profitability of a marketing campaign. While CTR indicates the percentage of users who click on an ad compared to those who don’t, it doesn’t directly reflect the actual impact on the advertiser’s bottom line. For example, even if the campaign is generating a high CTR, it could be more expensive to bid for that ad format in a particular ad zone, compared to an ad format/ad zone that has a low CTR but is less expensive. This is where ROI (Return on Investment) comes in as a key KPI. ROI is often considered one of the most critical KPIs for online advertising. ROI measures the profitability of the campaign by comparing the revenue generated or costs saved to the amount invested. It provides a direct evaluation of the campaign’s financial success and effectiveness in delivering a positive return.
Why is ROI the most important KPI?
ROI allows advertisers to determine whether their advertising efforts are resulting in a profitable outcome and helps guide decision-making related to budget allocation, campaign optimization, and strategy adjustments. By tracking ROI, advertisers can make informed decisions to maximize their advertising performance and ensure that their campaigns are generating meaningful results for their business.
What about ROI versus ROAS?
Both ROI (Return on Investment) and ROAS (Return on Ad Spend) are important KPIs for online advertising but they serve different purposes and focus on different aspects.
ROI is a broader metric that considers the overall profitability of an investment, not just limited to advertising. It measures the net profit generated in relation to the total investment, including all costs associated with the campaign, such as production, distribution, and advertising expenses. ROI provides a comprehensive view of the campaign’s financial success and helps determine the overall impact on the business.
ROAS, on the other hand, specifically focuses on the revenue generated in relation to the ad spend. It measures the effectiveness of the advertising campaign in driving revenue and determines how efficiently the advertising budget is being utilized. ROAS is typically calculated by dividing the revenue generated by the ad spend.
In terms of importance, it depends on the specific goals and priorities of the campaign. ROI is typically considered more comprehensive and crucial as it takes into account all aspects of the investment. It provides a holistic view of the profitability of the campaign and its impact on the business’s overall financial health.
However, ROAS is important for optimizing advertising strategies and maximizing the efficiency of the ad spend. It helps advertisers evaluate the performance of different advertising channels, campaigns, or targeting approaches and make data-driven decisions to allocate their budget effectively.
In summary, ROI is a broader measure that assesses the overall profitability, while ROAS focuses specifically on the revenue generated from ad spend. Both metrics are valuable, but the importance of each depends on the specific goals and priorities of the business.
More about ROAS and ROI: Smart Bid and Conversion Tracking
ExoClick recently introduced Smart Bid, a new campaign pricing model that uses machine learning. It is an automated bidding feature for advertisers that will analyze campaign data and automatically determines the optimal price in real-time based on the following factors:
- The likelihood of a conversion
- Analysis across several data points
- Using conversion data for specific dimensions: zones, countries, device types, browsers, etc
You can select one of the following two bidding strategies: Target CPA (Cost per Acquisition) or Target ROAS (Return on Advertising Spend). Here is an advertiser’s Native campaign Case Study that obtained an ROAS of 120% using Smart Bid.
Of course, in order to use Smart Bid you need to set a conversion tracking goal and ExoClick provides a free tool that enables advertisers to monitor their campaign ROI. In the image below, you can ExoClick’s free Conversion Tracking tool at work. Under the Profit column, when a red number is displayed the campaign is making a loss and when the numbers are green the campaign is making a profit. The tool also calculates the ROI of each group of conversions per ad zone, with red a negative ROI and green a positive ROI.
Using ExoClick’s free Conversion Tracking tool in conjunction with Smart Bid creates a powerful combination that not only automates much of your campaigns automation to reach your goals, most importantly you will have visibility on the entire ROI of your campaigns. For further information please speak to your account manager or a 24/7 Customer Success Manager here.