Confusing Internet Marketing Terms Demystified (Part 3) – All about Math
Were you good at math?
Of course. I’m Asian. I’m by default awesome at math.
Take a look at this problem I had to solve in junior high school:
I got A+ for humor (D- for actual test).
Well, this post is all about math.. don’t worry, it ain’t nuclear physics type of math, but simple division… and how they relate to your CPL (cost per lead).
Don’t worry, luckily internet marketing / lead generation math isn’t as bad as you think.. simple multiplications and divisions.
Before we start, let’s define a term:
Conversion = Action that you want your visitor to take. Such as purchase, sign up, download, etc. For purpose of this post, getting a lead is a conversion.
Ok, let’s dive in.
Cost per Lead
CPL = $ spent / # of leads.
This formula doesn’t care if you bid CPC or CPM…. or if you spent money online or offline.
All that matters is how much $ did you spend on advertising medium and how many leads did you get out of it.
You can spend $1000 to buy 1000 clicks online… or spend $1000 to buy 10,000 offline direct mail pieces.
If you get 100 leads, BOTH the online and offline marketing campaign yielded $10 CPL.
CTR = # of clicks PER 100 impressions.
So if you get 10 clicks for 1000 impressions, you’re going to get 10/1000 = 1% CTR.
This applies to both text based ads (like in search marketing) or in image based ads.
Basic rule of thumb
- the more compelling your ad (great unique selling proposition, risquee, interesting, sexy, disturbing, funny, emotional), the higher the CTR.
- the more relevant your ad is to the content around the page, the higher the CTR
- the more branding power your company, product, or service has, the higher the CTR (social media marketing helps)
- the more repeated your message, the higher the CTR (repeated message = sales)
So should you care about improving your CTR whether or not you bid CPC or CPM?
CPC – The more CTR means more revenue for the ad network. If you’re helping them make more money, they will help you get more clicks with better ad positions.
CPM – The more CTR means you are getting more clicks for each and every impression, which means you are more likely to keep that ad running. This means effectively, your true cost per click is going down, and lowering your cost per visitor. And of course, this means you are paying more money to the ad network because now you’re financially incentivized.
Bottom line is.. the more money you make for the ad network, the more you’re going to be blessed with traffic.
How does CTR affect CPL?
Higher the CTR, the more clicks you are getting for cheaper price, thus more qualified visitors for less price and higher chance of getting a conversion
In another words, higher the CTR, (in majority of the cases) lower the CPL.
Conversion rate = # of conversions PER 100 visitors.
So if you have 5 conversions per 100 visitors, you would have 5% conversion rate.
Why is this important?
Suppose you’re running two campaigns side by side, where each one is showing different message, image, call-to-action button, or anything where you’re split testing to see what works best:
You’d like to know what works best, wouldn’t you?
Then you have to look at what “persuades” the visitor to take action the most.
That’s where the conversion rate comes in handy.
How does Conversion Rate affect Cost Per Lead?
Simply put: different messages have a different way of affecting people to take action.
So there are several major factors that determine the conversion rate
- what is said in your ad (banner ad)
- how effective your ad is in getting a click (banner ad CTR)
- how relevant the landing page is to your ad
- how effective your landing page in making the sales pitch (landing page optimization)
However, you can test EACH advertising message with potentially infinite combinations of landing pages.
So in reality, what you need to find out is the combination of banner ad to the landing page that produces the lowest cost per lead.
For example.. take a look at these 5 landing pages: