It’s critical to evaluate your company’s advertising campaigns periodically if you want to get the most out of your marketing budget.
Using different metrics to assess the effectiveness of your campaigns will allow you to get a full picture of how they’re performing and to make data-driven decisions on where to spend your marketing dollars.
The weight and priority you give to each metric will depend on your company’s growth goals and strategy, your industry's competitive landscape, and the type of service or product your company sells.
Note: You will not find surface-level metrics (e.g. clicks and impressions) in this resource because they are not important in determining the overall strength of your advertising campaigns.
However, they are still important metrics when monitoring and improving the day-to-day performance of an advertising channel.
Also, this resource will not discuss metrics used to evaluate the effectiveness of PR and branding campaigns.
Total Number of Leads Generated
Leads are often defined as potential customers who show interest in your company’s service or product. Your company can determine how much interest must be shown for a potential customer to be considered a lead and what that interest looks like.
A general rule of thumb is to consider those who offer viable contact information (by directly contacting your company or submitting a form) as a result of your advertising are considered leads.
Keeping count of leads generated is a good place to start when evaluating the effectiveness of your advertising campaigns, but it will give you an incomplete picture if you don’t evaluate additional metrics.
For example: you might consider your campaign a success if it generates 200 leads in a month, but if you drill deeper by looking at how many leads converted to customers, you might find that only 2 leads convert into customers each month.
You’d think differently about the strength of your campaign after seeing that it only has a 1 percent customer conversion rate.
Average Time to Conversion
The average time it takes leads to convert into customers depends on factors such as the typical length of the buying cycle for your customers and the stage of the buyer's journey the leads are in.
Knowing the average time to conversion for each of your marketing channels can help you conduct a more accurate assessment of the strength of your campaigns – especially if your sales cycle is longer than a month.
For example: If it usually takes 8 weeks for leads generated from your Facebook ad campaign to convert into customers, you might decide to evaluate your Facebook campaigns quarterly rather than monthly because the monthly view would not capture the snapshot of sales generated from that month of running Facebook ads.
In that same vein, you can compare the performance of new campaigns against that of past campaigns to identify trends, opportunities, roadblocks, and errors.
For example: If it usually takes 2 weeks for your leads generated from Google ads to convert, but your new campaign is attracting leads that take 4 weeks to convert, then you should start asking questions to determine what’s different between this campaign and the others.
Some of those questions could be:
Is this campaign attracting a different type of consumer?
Is this campaign targeting a different location?
Has the nature of the industry changed since we last ran this type of campaign?
Is this campaign promoting a different service than the others?
Is there more competition than when we usually run this campaign?
Have market conditions changed since we’ve last run a campaign like this?
Are we using a different style of ad copy or landing pages?
Is this campaign being run during a different season than the rest?
Knowing the average time to conversion for each of your marketing channels can also help you craft a well-informed advertising strategy.
For example: If you know your Facebook ads generate leads that take an average of 6 weeks to convert into customers, you can incorporate a follow-up email marketing campaign to interact with the leads in the months leading up to the sale.
This approach would produce a higher yield of new customers than if you did not interact with the leads after you got their information.
Total Number of Customers Generated
It’s a simple metric, but extremely important! How many customers has your company earned from each advertising campaign?
This metric is a cut and dry indicator of whether your advertising campaigns are working. You can have a ton of Facebook likes and ad clicks, but if you’re not getting more customers, then something is wrong.
What gets tricky is linking customers to the advertising campaigns that played a part in moving customers through your sales cycle – especially if you are using multiple marketing channels.
There are several best practices and emerging software that make it easier to do this kind of tracking, but if you’re not used to using them, it can be a bit daunting.
Total Revenue Generated
This is different from the total number of customers generated because it focuses on the dollar value generated rather than head count.
This is especially important for companies that see variations in revenue generated per customer based on customer attributes such as:
Service or product needs
Evaluating advertising campaigns and channels based on how much money they bring in the door can help you determine if they’re worth continuing or if they need adjustments.
For example: You might find that your Google ads campaign targeting a specific city only earns small jobs that aren’t worth your company’s time, so you decide to shut it off and target a different city instead.
Average Profit Margin per Customer Gained
Just like the total revenue generated metric, average profit margin per customer gained focuses on earnings.
It comes down to the bottom line, and if your advertising campaigns are generating business that hurts your bottom line, then you need to increase pricing, reduce costs, or run campaigns that attract higher margin customers.
Believe it or not, the last of the three is often the easiest!
Customer Conversion Rate
The customer conversion rate is a quick metric you can calculate to compare advertising campaigns or channels side-by-side or to run rough campaign projections.
You can calculate the customer conversion rate by dividing the total number of customers gained by the total number of leads generated (by a channel or campaign) then multiplying by 100.
The higher percentage, the better the channel or campaign is at generating leads and converting them into customers.
Note: If you're in a business that takes several weeks and multiple channels to generate leads and convert them into customers, then you should be careful using this metric to evaluate the effectiveness of campaigns and channels.
Some campaigns and channels generate leads while others convert them, so if you use the customer conversion rate on a campaign or channel that is ONLY good for generating leads, then you might inaccurately assess its effectiveness.
Customer Acquisition Cost (CAC)
This metric represents how much it costs to get a new customer through the advertising campaign.
You can calculate it by dividing the cost of the advertising campaign by the number of new customers you gained from that same campaign.
Knowing the CAC for each channel and campaign will help you determine whether you’re spending too much or just enough to get customers from them.
It can also help you build growth projections based on cost.
For example: If your average CAC for Google ads is $71 per customer, and you want to gain 100 new customers in a month; then you can expect to spend about $7,100 in Google ads to achieve your growth goal.
It helps to have an ideal CAC to aim for, but it’s important to keep in mind that CACs are often higher than you would expect – especially if there is competition on the advertising channel that you’re using (e.g. Facebook ads or Google ads).
To better inform the ideal CAC you set, you should calculate your Average Customer Lifetime Value (CLV) to see how much a new customer is really worth.
Return on Ad Spend (ROAS)
Like customer acquisition cost, ROAS can help you decide if what you’re spending on a campaign or channel is worth it.
ROAS says, “for every dollar spent on advertising, we earn ___ in revenue.”
It’s calculated by dividing the total revenue generated by the channel or campaign by the total cost of the campaign or channel.
Channels or campaigns that have a high ROAS are keepers while those that have a low ROAS need adjustments or reconsideration.