Web Marketing - AdWord Metrics

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Business Metrics for Data-Driven Companies

4971 calificaciones

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Duke University

Business Metrics for Data-Driven Companies

4971 calificaciones

Curso 1 de 5 en SpecializationExcel to MySQL: Analytic Techniques for Business

In this course, you will learn best practices for how to use data analytics to make any company more competitive and more profitable. You will be able to recognize the most critical business metrics and distinguish them from mere data. You’ll get a clear picture of the vital but different roles business analysts, business data analysts, and data scientists each play in various types of companies. And you’ll know exactly what skills are required to be hired for, and succeed at, these high-demand jobs. Finally, you will be able to use a checklist provided in the course to score any company on how effectively it is embracing big data culture. Digital companies like Amazon, Uber and Airbnb are transforming entire industries through their creative use of big data. You’ll understand why these companies are so disruptive and how they use data-analytics techniques to out-compete traditional companies.

De la lección

Going Deeper into Business Metrics

Welcome! This week we’re going to go deeper into the critically-important metrics for web marketing - metrics every type of business needs to understand in order to survive. We’ll dive into the 'vertical' market of financial services - where digital companies are threatening to take away the market from traditional 'brick-and- mortar' companies.By the end of this week, you will be able to: Identify critical business metrics for all companies engaged in web-based marketing; and identify critical business metrics for financial services companies. You’ll find additional website links that expand some of the course materials covered in this week’s video lectures.

Web Marketing - Metrics6:10

Web Marketing - AdWord Metrics7:24

Web Marketing - Segmentation5:25

Conoce a los instructores

Daniel Egger
Executive in Residence and Director, Center for Quantitative Modeling
Pratt School of Engineering, Duke University
Jana Schaich Borg
Assistant Research Professor
Social Science Research Institute

One of the most focused ways to reach who have an interest in your offering is

by purchasing Adwords.

Adwords are offered by Google on an auction basis and

the following description applies specifically to Google.

But there are a number of other similar alternative venues and pricing schemes.

The way the Adwords auction market works is as follows.

First, when a user enters search terms into Google, Google identifies ad words,

terms that advertisers have placed bids on that match the searchers topic.

This step is not trivial from a computing point of view.

For example, Google may match a user search on emergency pet

care to the key words veterinary hospital and animal hospital.

Advertisers bid on their keywords by setting a maximum cost per click-through,

or Max CPC for each keyword they are interested in.

CPC bidding is also sometimes called pay per click, or PPC.

Typically, winning adword bids are sold for less than the maximum CPC.

The actual CPC is typically 1 to $2.

The formula for how actual CPC is calculated is a little complicated and

we'll leave that for another day.

Currently, the most expensive adwords that you can buy

are per-clit through prices for insurance, attorney, and

mortgage, $54, $47, and $47 respectively.

Note that Google gets paid only when someone clicks through

a sponsored link to the advertiser's landing page.

Google ranks the links that it shows.

Higher ranked links get more attention and more clicks.

Google could maximize its revenues by ranking highest,

links that maximize actual CPC multiplied by the expected click-through rate.

In fact, Google does almost exactly this calculation.

But instead of multiplying the CPC by the expected click-through rate alone,

they multiply CPC by a metric called a Quality Score that includes

the expected click through rate and two other factors.

The other weighting factors are ad relevance and landing page experience.

In Google's words what this means is the quality of your ad text and

landing page in the context of what a user is searching for.

This may sound mysterious, but the purpose of the two additional waiting factors

is to prevent exploitative misdirection that would hurt the Google brand.

For example, imagine if a liquor store decided to buy adwords

related to emergency pet care, the example we used before,

on the theory that people with a sick pet could probably use a drink.

Google automatically parses the text of the sponsored link, and

of the web page the sponsored link points to, the so-called landing page.

If either text does not contained primarily language directly related to

the medical care of animals,

the liquor store would get a very low quality score for that bid.

Google aims to offer sponsored links to landing pages that are as similar

as possible in subject matter, quality, and click-through rates to

the webpages that Google ranks highest in its unsponsored or organic search results.

To avoid low quality scores the rule of thumb is be yourself.

Keep your landing page text directly relevant to your adwords and vice versa.

If we bid on adwords such as vegetarian pizza and frozen pizza,

we should have a reasonably good quality score, so long as we make sure that

our landing page contains substantive information about our product,

like information on our ingredients, our vegetarian philosophy, etc.

If we tried to sell ads on our homepage or direct people to links on other topics,

that would also negatively impact our quality score.

Once we develop some experience with bidding on adwords, we will have

data on the typical actual cost per click through, actual CPC we are paying.

We can track just the users who come to our website through a sponsored link and

determine what percentage of them ultimately buy our product at least once.

This percentage is our conversion rate for sponsored links.

The actual CPC divided by the conversion rate is our acquisition cost for

new customers through the sponsored link channel.

Some customers will buy from us only once.

Others become recurring revenue customers.

Once we have enough conversions to develop an idea of what the average

pattern of purchases over time is, from each conversion,

we can estimate a lifetime value, or LTV, of each customer.

This represents the present value of all future revenues from that customer.

Lifetime value is calculated in a number of different ways.

There's an excellent infographic produced by Kissmetrics, and

we'll provide a link to that in the supplemental materials and

we'll give some different formulas in the glossary as well.

If we assume that the lifetime value for

our pizza business for each customer is $500,

then in theory with a conversion rate of $2,

we could pay anything up to but not over $10 CPC and still be profitable.

However, this standard calculation is a bit misleading in my opinion.

Unless your company is already very cash flow positive,

your goal should be a cost of customer acquisition less than the first year's

average revenues per customer.

So, if our pizza sales on average or $85 per new customer in the first year and

we are paying $2 CPC with a conversion rate of 2%, we are paying

$100 cash to acquire each customer with an expected revenue of only $85.

That is potentially risky.

This customer may be profitable over a lifetime, but

don't forget what happened to Edgar's Roast Coffee.

Don't run out of cash on your way to riches.

We need a CPC of under $1.70 to recover the cash outlay of our campaign

within a year.

Even then we will be cash flow negative because $85 is the average revenue

total sales, not the positive cash flow from that customer's sales.

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