If you’re measuring your search engine marketing program performance based on traffic, clicks and page views, you’re actually stuck out in left field. The main metrics that matter, according to Andreas Ramos and Roslyn Layton, are customer lifetime value, contribution margin and close rate, which then help you determine your target cost per lead or cost per action.
In their e-book, "Key Performance Indicators (KPIs) for Search Engine Marketing" (McGraw-Hill), Ramos, an analytics and marketing consultant based in Palo Alto, Calif., and Layton, agency director at Coremetrics, an online marketing services provider headquartered in San Mateo, Calif., show how the right metrics work together:
1. Multiply your average order value and the number of orders your average customer makes in a year across his life cycle to get your average customer lifetime value.
2. Building off customer lifetime value, multiply this number by your contribution margin to determine your cost per action (CPA). For single-step sales, this is synonymous with cost per lead (CPL).
3. For multistep sales, take your CPA value and multiply it by your close rate to isolate your CPL.
By determining your CPA and CPL, you'll know how much you can afford to spend on your paid search programs while remaining profitable. As such, Ramos and Layton point out, you will be able to ratchet up your efforts across sources that perform—and pull back when results don’t meet your fiscal needs. “Don’t look at marketing as a cost,” they emphasize in the e-book. “Your goal is to acquire customers to maximize your revenues.”
To download a copy of the 25-page e-book, visit Coremetrics’ resources center.
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