25 Mar Important digital advertising formulas
We always talk about measuring our digital marketing efforts. But what does it mean? How do you measure success?
Well, there are many formulas in online advertising that marketers should know.
We have compiled the 5 basic formulas with examples that will help you determine how well your campaigns are performing.
1. Click through Rate (CTR)
CTR is used to calculate the overall performance of a campaign.
The higher the rate is the more successful the campaign is.
Formula
CTR = (number of clicks / number of views) x 100
Example
In a campaign, if your ad was seen 4,000 times and received 100 clicks, the CRT would be 2.5%, since (100/4,000) x 100 = 2.5%.
2. Cost per Click (CPC)
CPC model is used when an advertiser pays for each click instead of impressions.
If you chose the CPC model for a campaign, to know how much it will cost, you have to think about the amount you would like to pay for each click.
Formula
CPC = cost to an advertiser * number of clicks
CPC = cost to an advertiser / number of clicks
Example
In a campaign, if you receive 60 clicks and the CPC is $3, the total cost is $180.
If you don’t know how much the CPC is, take the total cost divided by the number of clicks. Let’s say the total cost was $180 and the total click was 60, the CPC will be $3.
3. Return on Investment (ROI)
The ROI is to understand the success of a campaign. You have to know the monetary benefit against the money invested.
Formula
ROI = (total revenue – total cost) / total cost
Example
If you spent $1,000 on an ad and it generated $5,000 in sales, the ROI would be $4, since (5,000-1,000)/1,000 = $4. This means for every dollar spent, the campaign generated $4.
4. Conversion Rate (CR)
This model is used if the goal of a campaign is to only generate revenue.
Formula
CR = (number of conversion / number of clicks) x 100
Example
In a campaign you had 60 conversions from 1,000 clicks, your conversions rate would be 6%, since 60 / 1,000 x 100 = 6.
5. Cost per Mille (CPM)
The cost per thousand impressions is used by companies who want to create brand awareness.
Formula
CPM = (cost to an advertiser / impression) x 1000
Example
If an ad received 5,000 impressions and the advertiser decided to pay $30 for the campaign, the CPM would be $6 since (30/5,000) x 1,000 = 6.
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