Advertising goes hand in hand with the measurement. If we don’t measure, there is no way to understand if our campaigns work properly. In order to follow clues, we need to drill down into factors that have been affecting campaigns. Although the definition of success differs among different products, there are crucial KPI’s that never lose its importance for any of them.
Conversion Rate (CR)
Whereas CTR informs us with creative strength driving user engagement, conversion rate focuses on customers that closer to the bottom of conversion funnel. Whether your conversion metric based on installs or purchases, it helps identify the source of the revenue, therefore, where to invest marketing budget.
CR=Total number of conversions / Total number of potential conversions
ROAS, or return on ad spend, is metric for measuring efficiency of online channels and campaigns. In other words, it tells how much money your campaign or channels bring on every euro you spend on them. Once you have ROAS reporting, you will see where to spare your money, and where to focus on deeper optimisation.
ROAS = Total revenue by channel over a time frame / Total spend in channel over a same time frame
Customer Acquisition Cost (CAC)
Customer acquisition cost is another important metric that indulge in marketing strategies, especially in the recent years. Note that, it is not same as CPA or CPI. CAC is calculated by involving marketing spendings across all online and ,if there any, offline channels. Best way to understand if CAC is on desirable level is comparing it with LTV. As I also discussed on the previous posts, keeping CAC smaller than LTV provides profitability.
CAC = Total cost of acquiring customers during the given period set time frame / number of customers acquired in same period
Lifetime Value (LTV)
LTV shows the revenue a single customer generates over the duration of their relationship with your product. Good LTV is a sign of long-term success. Its formula considers a whole lifespan. Therefore, increasing retention rate and customer loyalty improve LTV. Again as above, that target of the product should be keeping the cost of acquiring a customer should be considerably lower than LTV.
LTV = Average Purchase Value × Gross Margin × Purchase Frequency × Customer Lifespan
The purchase frequency value measures the average number of orders placed by a customer over a defined period of time. It is important to know because, first, it is used on LTV calculation. Secondly, knowing frequency of purchase let marketers target existing customers on the right time without pouring money on where they are not ready to buy.
Purchase Frequency = Total number of purchases over a time period / total number of unique customers during the same time period
Daily Active Users (DAU) / Monthly Active Users (MAU)
Especially if you are advertising a mobile app, DAU/MAU ratio should be calculated constantly as it indicates the stickiness of your app. By dividing daily active and unique users by the number of unique users who engage with product over a month gives your success in keeping return users.
Customer Churn Rate
Customer Churn Rate is the percentage of customers lost over a given period of time. This means customers who cancel their subscription or stop making purchase within an average timeframe. High churn rate might caused by not only because your product became less attractive but also because of incorrect settings such as wrong landing pages, irrelevant retargeting etc.
Churn Rate = Total number of customers churned this time period / Total number of customers at the start of this time period