How to Analyze The Performance of Your Display Ads [Free Guide]

Contrary to what you might think, display ads and inbound marketing aren't inherently incompatible. In fact, applying inbound marketing principals to your display ad strategy can help maximize your potential reach and attract more qualified leads.

The key to creating "inbound-y" display ad campaigns is proper planning and positioning. In this article, we'll cover how to define performance metrics for your display ads, set measurable goals, and ultimately analyze success.

Analyzing Ad Performance and Setting Goals

The following is an excerpt from Display Ads & Inbound Marketing, a free guide we created with our friends at AdRoll. If you'd like to access the full guide, click here.

Before you dive into building your first ad campaigns, you'll need to ensure you understand what constitutes success for each ad, which performance indicators to track, and how to measure your progress in real time. In this section, we'll help you do just that.

Setting Campaign Goals

One of the biggest mistakes marketers make when setting up a campaign is using the same success metrics for every stage. This causes a number of problems:

• Under-investment in acquiring new customers
• Over-investment in campaigns for customers who buy again and again regardless of marketing efforts
• Limited investment in mid-funnel nurturing

Here are the key performance indicators (KPIs) you'll need to track in order to measure the success of your campaigns.

Also known as the awareness stage, where prospects are looking for answers, resources, and research.

New site visitors: The number of new visitors who came to your site after you launched a campaign. This KPI helps you understand how successful your campaigns are at increasing brand recognition and overall site traffic.

Engagement: Engagement, including time spent on your site, or number of pages viewed, is a good indicator of the quality of new traffic to your site. Be sure to compare engagement on a product-by-product basis, too. If your new visitors' bounce rate is high or their site duration is low, you may need to adjust your strategy.

The middle of the funnel, also known as the consideration stage, is where prospects are evaluating whether your product or service is right for them. Marketers will want to start focusing on converting their customers into paying accounts in this stage.

Number of conversions: The total number of conversions driven by a campaign. Prospects at this stage are already aware of your brand and your content. Use retargeting to convince them to convert and adjust your campaigns based on how many of them actually do.

View-through conversions (VTCs): Conversions that resulted from customers who viewed ads but did not click. The truth is, no one likes clicking ads -- but that doesn't mean they don't influence conversions.

Once prospects arrive on your site, take a look at how many of them convert after being served an ad -- even if they never clicked one -- to get a fair and accurate picture of the effectiveness of each ad

Attributed closed deals and new sales: The total number of deals closed from prospective customers who interacted with an advertising campaign. In addition to the total number of conversions, you should measure campaigns at the middle of the funnel by the number and quality of deals they're closing -- as well as the number of new sales and overall new customers that they drive.

Cost-per-acquisition (CPA): Your overall campaign spend divided by the total number of conversions. CPA is an important KPI to keep track of across the entire funnel, as a helpful proxy for how effective your teams are at closing, retaining, and cultivating customers.

Also known as the decision stage, this is the stage where prospects are deciding from whom they want to buy. As a marketer, you want to focus on closing deals that grow your customer base, while also up-selling or cross selling existing customers. KPIs at the bottom of the funnel help marketers evaluate the ultimate revenue consequences of their efforts.

ROI and LTV

Return on investment (ROI): The net profit generated by your campaign, calculated as the difference between the total revenue the campaign generated and the total cost of running the campaign.

Lifetime value (LTV): The net profit attributed to a customer over their lifetime. There are many ways to calculate LTV, but a model that is tailored to the specifics of your sales cycle will be most effective. LTV is important because it helps marketers calculate their ROI over time.

How to Calculate LTV

LTV = (AVERAGE MARGIN PER ORDER X REPEAT SALES FREQUENCY X AVERAGE RETENTION TIME)

Example: $300 = ($100 x 0.5 purchases per month x 6 months) - Lifetime value is $300.

In this first equation, we're shown how to calculate the lifetime value of a customer. Here we're looking at the average margin per order, the repeat sales frequency, and the average retention time. Let's break this down.

Average margin per order means the average amount of money a company brings in after processing and delivering a product. The next two metrics are meant to determine how often someone will purchase your products throughout the entire time they remain your customer. When combining these metrics, we were able to determine a LTV of $300.

How to Calculate ROI

ROI = (LTV-CPA)

Example:

LTV = $300 (calculated above)
CPA = $50 (what we pay to “buy” high-quality customers)
ROI = ($300-$50)

OVERALL ROI IS $250, A 400% INCREASE ON THE CPA

For this example, the situation is reversed. Here we already know the LTV, but are looking at understanding the return on investment of our advertising efforts. For this equation, we'll look at the lifetime value minus the total cost to acquire a new customer (CPA).

Here we see that it cost $50 to acquire one single new customer and this customer had an LTV of $300 (taken from above). Once we subtract the CPA, we reveal an ROI that is 400% higher. Quite an improvement.

By gaining a deep understanding of the LTV of your average customer, and using that metric to determine how much to spend to get them to convert, you can get a more accurate sense of what your ROI is for your ad campaigns.

Why Do KPIs Matter? 

The Short Answer: Attribution

Attribution is critical because it allows marketers to evaluate what ads or marketing efforts are driving results and measure the impact of their advertising. Yearly trends continue to show that marketers (and their bosses) are placing more and more importance on marketing analytics and attribution.

AdRoll's recent State of Performance Marketing Report found that almost 75% of marketers believe attribution is critical or very important to marketing success. Over 40% said that they spend the lion's share of their yearly budgets on campaign measurement.


Despite this influx of interest, many marketers continue to exclusively track ad clicks to measure their campaigns. Tracking ad clicks alone completely misses a large portion of your audience -- those who don't click on ads, but may still be influenced to convert later.

Why Last Click Doesn't Tell the Whole Story

• A small portion of people click on ads: Only 16% of users click on ads, and half of those -- 8% -- account for 85% of all clicks on display ads. This means that this pool of what the industry calls “natural born clickers” is the only audience you track.

• Last-click tracking incentivizes finding users who would buy without advertising: Last-click attribution models are fundamentally incentivized to find users already likely to purchase—a practice referred to to as “funnel jumping.” Ideally, advertising should influence users to consider purchasing a product or service they wouldn't otherwise have been exposed to.

• Credit is not accurately assigned across publishers: last-click gives all the credit to the final click and ignores any other marketing that occurred before the purchase. This means any previous messaging users were exposed to, in addition to any content they consumed that discussed your brand, isn't appropriately valued.

In fact, in the same survey almost 65% of respondents said that they currently employ a click-based attribution model. However, over 90% of them said that they plan to or are considering changing their attribution model in 2017 -- signifying a large shift away from click-based attribution in the coming year.

The Alternative

Unlike click-based attribution models, blended attribution allows marketers to take into account both views and clicks when measuring the success of their campaigns. This metric retains the simplicity and immediacy of click-based attribution while accounting for the cumulative effect of views. More importantly, it takes into account what advertisers have always known: that viewing ads influences consumer behavior.

By combining views and clicks, we reveal a more nuanced, and ultimately more accurate, picture of how advertising affects users. This helps marketers allocate their budget and take into account all the effort that goes into both media planning and creative development.

Want to learn how to create your own ads? Click here to access the complete guide: Display Ads & Inbound Marketing