Many businesses run pay-per-click (PPC) campaigns in order to increase traffic and sales to to their websites. However, many are not looking at how effective those campaigns are. I’ve run across several websites which thought they were doing ok with their PPC campaigns, but upon closer examination, we found they were spending more than they were getting out of the advertising.
Conversions
A conversion is when an action that you’re advertising is actually taken on your website. So if you’re advertising a product, it’s when someone actually purchases that product. This is usually tracked by putting a script tag from your PPC ad on your thank you page that happens after a purchase is made. Conversions are the whole reason you’re advertising, so they are very important to track.
Cost Per Conversion
For the number of conversions you get in any time period, how much are you spending on advertising? Taking the total amount spent and dividing it by the number of conversions will give you how much you’re spending per conversion – or cost per conversion. This metric is extremely important for knowing whether you’re spending too much on your advertising for what you’re getting out of it. If this number is too high, it’s time to look at optimizing your ads, website and landing pages. (As an aside, sometimes people will click on an ad and purchase a product much later – days or weeks – this is not tracked with this metric).
Conversion Rate
How many clicks do you have to get before someone purchases from you? How effective is the path the visitor takes to purchase the product? The number of conversions divided by the number of ad clicks gives you the conversion rate.
Clicks
How many times people are clicking on your ad- how much interest and traffic it is generating. If you are using advertising for branding or just for traffic, and are not tracking conversions or sales, this is an important metric.
Cost Per Click
How much each click costs – or how much you’re paying for each person that your ad brings to your website. Taking the total amount spent and dividing it by the number of clicks will give you this metric.
Click Through Rate (CTR)
How effective your ad is – in message and targeting (keywords, placements, etc.) Measured by the number of clicks on an ad divided by the number of impressions (number of times it is shown). A low CTR can indicate poor messaging or targeting (keywords, placements, etc.).
(photo by The Ancient Brit @ Flickr CC)
Technorati tags: pay-per-click advertising, internet advertising, internet marketing, search engine marketing, business, SEM, SEO, PPC, marketing
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Avinash Kaushik had a 
I think a lot of companies get all bound up in the need to advertise, advertise, advertise, which is great, but successful companies understand that marketing is so much more than advertising. Marketing is intimately tied to business objectives, strategy, and customer relationships – how they inter-relate and how to tie them together to reach the business’ goals.