The 6 Advertising Performance Metrics That Actually Matter
If your business decides to run a radio advertising campaign, dozens of potential metrics exist that you can follow to help guide the process. The primary question that your business needs to answer is whether it gets a positive or a negative Return on an Ad Spend (ROAS). The answer to that question will help you decide whether to tweak the ad campaign or stop running it altogether. The following six metrics are essential to analyzing your ROAS and to identifying where your ad campaign calls for changes:
- Number of new leads
- CPL (Cost per lead)
- Number of new customers
- CAC (Cost to acquire a customer)
- LTV (lifetime value)
Let’s take a closer look at each of them.
Understanding the metrics. Here are five areas in which metrics will help determine the course of your ad buys:
- Deciding where to run your radio campaign. The term “reach” is the metric that refers to the number of people who hear a radio advertisement. Your business’s goal is to extend your target audience so that it reaches the maximum number of audience members that will generate leads. It is unprofitable to expand the reach of the business’s advertisement to include audience members who are not interested in your product or your service.
- Determining the number of new leads. Naturally, you want your radio campaign to generate new customers. It’s helpful to know how many leads you need in order to generate new customers. Marketing industry observers say that 92% of Americans listen to the radio every week which means radio reaches about 240 million people every week. Statistics also show that 25% of radio listeners are inclined to buy after hearing a radio ad. That’s the definition of a sales lead. And it means radio ads are still a worthwhile undertaking. Consequently, if you know the reach of your radio ad buys, you can figure that about 25% of those listeners will become leads. Hubbard Chicago has 3 top rated radio stations reaching 2.6M listeners (age 12+) each week.
- Determining the cost of a single lead. It’s often difficult to determine your ad campaign’s “cost per lead” (CPL) because you may not know whether a particular customer heard a specific ad. After all, most companies run more than one ad in a given advertising cycle. You can, however, gauge the number of leads that resulted from a specific radio advertisement by requesting that customers complete surveys indicating where they heard about the company or by asking about particular ads during customer interviews. Once you have the information about the number of leads that resulted from your radio ad, you can determine the ad’s CPL by dividing the total cost of the advertisement by the number of leads the ad generated.
- Determining the number of new customers. There is another formula for determining the number of new customers you want. Just divide your revenue goal by the dollars that your average customer generates. For example, if you want to increase revenue by $150,000 and your average customer spends $7500, then you need your radio advertisement to attract 20 new customers. Again, interviews with new customers will tell you if your radio ad caused their conversion from lead to customer.
- Calculation of the Cost to Acquire a Customer (CAC). Once you know your ad’s CPL and the number of leads it takes to get a new customer, it’s easy to calculate the cost of getting a new client/customer which is your CAC [CPL x # of leads per ad = Cost to Acquire A Customer].
- Figuring the customer’s lifetime value. Lifetime value (LTV), often seen as Customer Lifetime Value (CLV), is one of the fundamental statistics that your customer experience protocol should track. LTV refers to how valuable a customer is to your business over your entire relationship with them, not just one sale or the first sale. LTV helps you determine what is a reasonable cost for your business to acquire customers. It’s not helpful to compare the CAC with the value of just one lead conversion.
The Importance of Lifetime value. LTV is a crucial metric for the profitability of your business because you will spend less to retain a current customer than you will spend to secure a new customer. If you can find a way to increase the value of your current customer base, you will drive growth for your business.
Once you determine the magnitude of your LTV, it is time to compare that to your CAC. If the LTV is higher than your CAC, then your advertisement’s ROAS is positive which means your advertising campaign works well. If the LTV measurement is lower than the business’s CAC, then the advertising campaign’s ROAS is in negative territory. A negative ROAS means you need to tweak the advertising campaign or shut it down.
Wrapping up. Advertising campaigns are geared toward enhancing your customer base and driving growth for your business. To know whether a particular campaign is profitable and doing the job you created it to do, you must perform certain calculations.
- You cannot know if an advertisement is profitable if you do not know your CAC.
- You cannot know your CAC unless you know the leads generated by your radio advertisement. You may find it hard to determine which leads came from a specific radio advertisement but the measurement is necessary before you can calculate your CAC.
Strive to keep track of customers’ purchases so that at the end of the day you also know your customers’ lifetime value (LTV). With these six metrics, you will always be able to calculate your ROAS and know whether your advertising campaign is working or not.