Click Through Rate versus Conversions

One of the first calculations we make, or shown automatically, when we are presented with impression and click data on an ad group or campaign is to divide the clicks by the impressions. Multiply that result by a hundred and then you have your expected Click-Through Rate (CTR) expressed as a percentage. Your CTR represents how much traffic it captures typically and its exact value usually depends on what you’re advertising, how you’re doing it and to whom.

 

We care about having a CTR that is not abysmally low for two reasons. Firstly it is simply common sense that an ad that is racking up impressions but not clicks isn’t serving you very well. While impressions (in the Google Search Network) doesn’t have a monetary cost you will however pay in other means. It takes time and effort to set up an ad campaign which you should be rewarded for. Even if time and effort is negligible you are nonetheless serving dysfunctional ads for keywords that could otherwise be giving you returns. These points may not be sufficiently discouraging to stop this behaviour, which is why AdWords steps in to prevent it. AdWords compares the CTR that you are getting with what it thinks you ought to be getting, adjusting for ad position and market forces, and if given sufficiently disappointing numbers your Ad Rank will drop. This may even cause your ads to stop serving altogether if their ad rank wasn’t good to start with. Not having your Ads prevented from showing is the second reason why we take CTR seriously.

 

But not too seriously. An ad’s CTR is not the sole indicator of its performance. It is possible, nay easy, to create compelling ads that captures swathes of traffic while being completely irrelevant to your business. This is why it’s important to qualify your audience with your targeting and ad text. Irrelevant clicks are a direct liability and a drastic misappropriation of marketing funds. So let’s see how to keep them relevant.

 

Targeting:

Using tools in AdWords to control when your ads show and to whom is the first step to optimising your CTR and relevance. By excluding markets that wouldn’t be interested in your product or service in the first place you’ve avoided both pointless impressions and irrelevant clicks. If you have a food delivery business that operates in a particular set of suburbs then it would be best not to advertise in the greater metropolis. For that matter it would sometimes be best for your ads not to serve at times when your business is closed.

 

Optimising your targeting parameters can influence your CTR to either increase or decrease, but because we have removed a lot of uninterested parties we can expect it to improve.

 

Motivation:

As the second part of qualifying our audience we have to use ad text that captures people’s attention without misleading them or incorrectly portraying the business or product. More compelling ad text that users are interested in seeing, such as real discounts, specials, vouchers and prices, will get them clicking. Being specific about what is being advertised and what people can expect once they’ve clicked allows them to decide about it beforehand. This is could actually decrease your CTR because of people deciding on the fly whether they are interested or not. Despite sounding counterintuitive we actually want his to happen. If you can get shoppers to gauge their willingness to purchase before they click then you haven’t wasted a paid click on them making that decision on your website instead.

 

So we have come to a shocking revelation. There is a scenario where implementing a marketing strategy that reduces your CTR is actually a good business decision. We have a metric that indicates this and it is called conversions.

 

Conversion tracking offers a way of measuring which ad and keyword combinations result in clicks that actually lead to valuable actions. It is one thing for someone to read your ad, click it and land on your website and it is another thing for them to order services or purchase products thereafter. It will also tell us when a change that reduces CTR actually improves sales. Once conversion data starts rolling in it’s possible to judge what keywords are getting clicks but don’t lead to conversions and which ones do. From there it’s pretty easy to optimise. From this data we can start estimating profitability. If we look at an ad’s average Cost Per Click (CPC) and divide that by the conversion rate then we get an estimation of how much each conversion ultimately costs. If that value is less than the average worth of a valuable action on your website (minus expenses that aren’t ad related) then the ad campaign is returning a profit.

 

Setting up conversion tracking requires some technical skill in regards to HTML code and editing your website. It’s not terribly difficult but some assistance from your web hosting company may be needed. Failing that, either grab the nearest computer-literate person or just try to wing it. Google offers some decent step-by-step instructions here. It’s important to identify what a valuable action is on your website. Often it is not enough that a person has simply viewed your contact details page as we have no way of measuring if that directly resulted in a call or email. However a purchase or transaction is solid ground for measuring returns. We then have a middle ground, where the monetary value of a measurable action, such as signing up for a newsletter or submitting an application form, has to be estimated.

 

Conversion tracking does require extra work in the form of setting it up, monitoring it and optimising it but offers valuable insights that should not be overlooked.

 

Yuri Shatalov
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Yuri Shatalov
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