The Single Best Digital Marketing Metric You Aren’t Using

In the world of digital marketing, I’ve come to believe that there is a single metric to rule them all Effective Cost Per Acquisition (eCPA).

This post is a little longer, Read time – 7 Minutes to skim.

Here’s what we are going over -

·         What it is

·         How to use it

·         eCPA in Action

What it is –

Effective Cost per Acquisition is the average it costs your company to get one new purchase, signup, download, or any other key performance indicator that you have defined. This is a powerful metric; Imagine being able to say that it costs $20 dollars to sell a $50 dollar item. Given that the margins are appropriate in this case, you would now want to do that all day long right? Conversely, if it cost you $75 to acquire that same purchase, you might want to rethink your approach.

How to Use it –

The real power of eCPA becomes evident when you start segmenting by channel. Knowing which channel you are acquiring users from at the least expensive level starts empowering you to make informed decisions as to where to spend more money. The channels with the lowest cost per acquisition are the ones that you then dump money into, until they reach a level of saturation.

To figure out eCPA by channel, simply determine what the level of spend is for each channel and the level of sales each channel brings in. The latter is clearly more difficult, so here is a brief explanation of how to accomplish this. First, since you are reading this, you are likely using an analytics provider, such as Google Analytics or Omniture. Both of these allow you to track ecommerce on your site and both of them allow you to segment by channel.  If using Google Analytics, you can set up Advanced Filters (See below) to segment your traffic data and eCommerce data. In this instance, in the image below, we can segment by paid search traffic, organic traffic, MediaForge which is a re-targeting company, BuySellAds which is our banner advertisements coming from that portal and a number of others. We can even see the specific location that the banner ad traffic is coming from should we segment further.  You can read more about Segmentation at Avinaush Kaushik’s blog. You can also learn to set up tracking at Google Analytics blog.Advanced Filters in Google Analyics

Once you have determined the amount of sales you are achieving from each given channel as well as the cost of each channel, export all of that data in  an excel spreadsheet and crunch some numbers. For each channel, simply divide the cost by the number of sales , bam -  Cost per Sale (acquisition). I’m willing to guess that at first your cost per acquisition is going to be higher than your sale amount. Don’t freak out, that tends to happen and you shouldn’t necessarily drop that channel right away.

Lets use paid search campaigns as an example. If your effective cost per acquisition is higher than your average order, it is then time to dig a little deeper to see what may be causing this. Take a look at your adwords data and determine if there are particular keywords that are expensive and not driving sales. A single keword could be skewing your data. Upon dropping that keyword, perhaps this channel will yield a fantastic eCPA.

Continue on determing which channels are yielding favorable eCPA and discovering why other channels are not perfoming. Stating the obvious, the channels that are performing you should buy out as much as you can until they level off or achieve saturation.

eCPA in Action –

SongsForGifts is a site that sells completely custom written songs as novley gifts from your choice of musicians for $99.

http://songsforgifts.com is running:

Paid Search. Targeting hundreds of keywords in the unique gift space. We are using Adwords Auto tagging feature which integrates perfectly with Google Analytics, letting us track sales down to the key word.

 

Re-targeting with Banner ads. In addition to the tracking pixel that was given to us by the re-targeting company, we are tagging the url coming from the banner with additional Google Analytics code that will allow us to segment that traffic using the Advanced Segmentation we showed you earlier. You can see how to create your own URL’s for tracking purposes here.

 

Facebook Ads. Facebook has inadequate tracking for our purposes, so similar to the banner ads, we append unique tracking variables to the link that we give Facebook.

For this example, we are spending $100 per day for each medium. Each Sale on SongsForGifts generates $99.

In month 1, we determined that paid search resulted in an average of 0.25 sales per day, Re-targeting resulted in 4 sales per day, and Facebook resulted in 0.5 sales per day. Resulting in an eCPA per day, before any adjustments, of

·         Paid Search  - $400

·         Re-Targeting - $25

·         Facebook - $200

However, Re-Targeting was assisted by Paid  Search and Facebook 50% of the time. You should account for this by realizing that to acquire that sale via re-targeting - 25% of the time re-targeting was assisted by Facebook costing $225 and 25% of the time assisted by Search costing $425. There are a number of things you can do with this data, but for our purposes, we are going to continue with using the pre-adjusted numbers (mostly because this type of analysis opens a big can of worms in multi-touch attribution).

Looking into Paid Search, we determined that a particular ad group containing key words about “adventure gifts” (some would agrue not particularly relevent) was generating a high amount of clicks and therefore cost, but didn’t generate a single sale. In fact, it was accounting for 50% of the overall cost. Let’s eliminate that ad group, freeing up that budget for better performing ad groups.

With that change, in month 2, we were able to acquire 2 sales per day via Paid Search, with the other channels remaining constant, thus we begin the optimization process. Ultimately reslting in an eCPA of $50 for paid search.  Our Cost Per Acquisition is now lower than our sale price resulting in a positive return on that sale.

Facebook being at and eCPA of $200 must similarily be optimized to ensure we are spending less than we are making via this channel.

Pit Falls and tips

It is importat to understand that attributing a sale to a particualr channel is very difficult. That is why when you first set out on the eCPA mission, you will likely see eCPA’s that are much hiher than your average sale. As mentioned though, don’t panic and remove those channels rigt away. One might just be contriubting to a sale that happens much further down the line of touch points.

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