Why year-over-year comparisons are not the best gauge of PPC performance…
PPC Metrics – Why Year-Over-Year Comparisons Aren’t Everything
We all know that sales are cyclical, especially when it comes to online retail. Most businesses follow the same cycle each year, whether it’s a booming holiday season and slow summer for clothing retailers, or the opposite for a tropical resort. No matter which months are your strongest, you likely track your progress with year over year metrics. For example, if December is your strongest month for sales, you don’t want to compare it to your weakest month (let’s say, June). You want the apples-to-apples comparison of the same month last year, where the greatest number of variables are the same: types of shoppers you attract, their level or purchase intent, and even what products they shop for. However, many retailers forget that tracking linear progress is very important too.
When measuring any sales metric, it’s important to note which time frame is the most important to compare against. Some numbers are more valuable to look at through a year-over year lens, while others can tell a compelling story when examined linearly. The same principles can be applied when measuring the effectiveness of a PPC advertising campaign. Below are some good examples of what metrics to look at year-over-year, and what metrics can be valuable to examine on a month-to-month basis.
Metric: Return On Ad Spend
When to look at it: Month-To-Month
Return on ad spend is a perfect metric to look at linearly. Why? Because it’s measured as a percentage, meaning it’s relative to ad spend and gross advertising dollars. Return on ad spend is an indication of how optimally your PPC account is running, not your sales numbers. Even if your sales plummet from May to June, your ROAS (return on ad spend) should mainly be affected by the ongoing optimization of your bids, ad copy, and keyword strategies. Therefore, comparing ROAS on a month-to-month basis is a great indicator of your optimization efforts. Perfect example: your ROAS could be up by 50% in June 2012 compared to June 2011, but down 10% compared to May 2012. If you only looked at year over year metrics, you’d still think your account was in great shape, when in reality, an optimization you have implemented may be having a negative effect on your PPC account’s performance.
Metric: Number of Purchases Made
When to look at it: Year-Over-Year
Here is an example of a metric you’d certainly want to examine year-over-year. The cyclical nature of business makes metrics measured by non-percentage based numbers (1, 2, 3, 4, etc.) valuable to look at during the same month last year. If you sold 10,000 widgets last June, and 11,000 widgets this June, you’d understand that you’ve realized 10% growth from the same time period last year. However, if you sold 12,000 widgets this may, it would be fine to sell fewer in June because you have the sales patterns that show year-over-year growth.
Metric: Click-Through Rate
When to look at it: Month-to-month
Click-Through Rate (CTR) is another metric that can (and should be) looked at on a month-to month basis. Again, because it’s measured as a percentage, it doesn’t matter how many clicks or impressions you get in a given month. The CTR is a function of how your keywords, bidding strategy, and ad copy all work together to entice a potential customer to click your ad. Therefore, it mainly fluctuates as a result of optimization you perform on the account. Similar to the ROAS example, if your click-through rate is up 25% year over year, but down 20% from last month, you know that your account is in need of some tweaks, or at least an analysis of what changes occurred in the last month to cause the decline.
A Pattern Emerges
As you’ve probably noticed by now, numbers that are measured as percentages are prime candidates for month-to-month analysis. Because of their relative nature, they can be used to track linear progress and show a different story than simply using year-over-year comparisons. When it comes to PPC, return-on-ad-spend, click-through rates, and cost per click are all metrics that are indicators of how optimally your account is set up, not of your overarching business performance. Now, there are exceptions to the rule. Sometimes certain months bring influxes of shoppers with different attitudes. Maybe in June people are more likely to kick the tires than the holiday season, when they’ll probably buy the first item they see to cross it off their list. Also, maybe something on your website has changed, be it your inventory, pricing, or even the checkout process. These outside variables can skew the numbers, but the fact is that analyzing percentage based numbers is a great way to measure how well you’re optimizing your PPC account.
Bottom line: don’t just analyze your sales metrics with a year-over year lens, take a different perspective and look at your linear trends as well. Of course, metrics are the most powerful when you examine them from as many angles as possible, so remember to compare all of your results to find the most compelling and truest form of your business performance possible.