Chapter 6:

Metric definitions

Going deeper into the jargon hole, we have a list of values and ratios. We provide our way of calculating these and it will make reading the next chapters much more pleasant if you have these stored in your brain. You can always browse back if necessary, so no need to memorise them.

Unique Visitor #

A count that is the best determination of the number of individual people visiting your site. Typically analytics tools count software browsers so it's plausible that an individual may be counted twice if he/she uses a browser like Firefox and a mobile web browser to look at your site.

Why this is important It gives you a rough idea of how many people might be seeing what you want them to see, or at least are hanging around in your site.

Visit #

Also called a session, it's basically a count that shows how many times unique visitors visit your site.

Why this is important It gives you a rough idea of how many times people are seeing what you want them to see.

Page View #

Also called a view or an event it's a count of the amount of pages or events that are loaded in each visit. So if a unique visitor visits you once and looks at five webpages on your site it would be a 5 page view visit.

Why this is important It gives you a good idea of what people are looking at when they visit your site and how much content they look at, read or listen to.

The three metrics mentioned above used to be the only ones widely available ten years ago. Unique visitors are still the most important metric for a lot of people, even though they are worth nothing in themselves. Sure, having a large mass of people on your site can be a good thing, but just staring at these numbers could lead us to the wrong decisions - such as designing your site structure and content based on the masses who are not buying or doing anything.

When we got better tools and started selling stuff online, we were able to enrich our data. Cost metrics shown below were the first step and they're all used across all marketing channels. If you've done a digital marketing campaign, you've very probably come face to face with these. All of them are actually quite easy to understand when you see them opened up. Too bad that many people and companies use these acronyms to prove supremacy instead of actually delivering good information.

CPA (Cost per action/acquisition) #

A ratio that determines the cost of getting a visitor to do something you want them to do such as download an application, fill in a form or buy a product. It's worked out by totalling your costs and dividing it by the amount of actions.

Total Cost / #Actions Taken = CPA €10000 / 1000 downloads = €10 CPA for the cost of a download

Why this is important Understanding the cheapest way to get your prospects or customers to do something is key to understanding where to direct your efforts. CPA also allows you to set targets. So if you know that €10 per download is profitable that is a good target to set across all your marketing channels. Even more importantly: Define your CPA with everything. If you are doing marketing without a CPA, you're bound to fail. If you think you are doing what some people call "awareness" is justification enough, you're lying to yourself. When defining, it's really useful to base the calculations on some sort of business reality like average amount of purchase or similar.

CPC (Cost per click) #

A ratio that determines the cost of getting a click on your ad or link. It's worked out by totalling your costs and dividing it by the amount of clicks to your ads or links. The best way to use this metric is per channel (see the channel definition).

Total Cost of Marketing Channel / #Clicks = CPC €10000 / 10000 clicks = €1 CPC

Why this is important Understanding the cheapest way to get your prospects or customers to click on your offers across different parts of the customer lifecycle is again key to understanding where to direct your marketing efforts. CPC (and CPA) also allow you to predict which channels will be profitable and which won't.

CPV (Cost per visit) #

A ratio that determines the cost of a successful visit to your site. It's worked out by totalling your costs and dividing it by the amount of visits to your site. The best way to use this metric is per channel (see the channel definition). Not to be confused with cost per click which only measures the cost of clicking on an ad. CPV measures the cost of a successful fully loaded page view.

Total Cost of Marketing Channel / #visits = CPV €10000 / 10000 visits = €1 CPV

Why this is important Understanding the cheapest way to get your prospects or customers to see your site across different parts of the customer lifecycle is again key to understanding where to direct your marketing efforts. CPV (like CPC and CPA) also allow you to predict which channels will be profitable and which won't.

CPM (Cost per mille) #

A ratio that determines the cost per thousand (mille) typically of ad impressions but also could relate to 1000 visits to a website for instance. Usually used by media companies that charge by the amount of times your banner ad is seen on their websites. So if a company charges €40 CPM it means you pay €40 for every thousand times your banner ad is shown. Not to be confused with cost per click that is the cost of someone clicking the banner, CPM simply indicates the cost of seeing the banner.

Why this is important CPM gives you a rough idea of which sites are the most cost effective when you're trying to attract attention to your offers.

CTR (Click through rate) #

A ratio that measures the success of your advert or link of convincing the unique visitor to click through to read, listen or see your site. The ratio is often measured by the amount of clicks on the ad as a percentage of impressions, or opens of an email. To get a true figure though it should be worked out by the amount of visits to the site. The best way to use CTR is to compare across marketing channels (bought and owned for instance).

Impressions, opens or page views seen / #visits = CTR 10000 ad impressions / 1000 visits to the site = 10% CTR 10000 emails opened / 1000 visits to the site = 10% CTR 10000 pages viewed / 1000 visits to the clicked to page = 10% CTR

Why this is important CTR gives you a rough idea about the strength of your ability to get people to take the next step towards the action you want them to take. CTR is a very important measure of how you get people to engage with your site.

Click through rate has become a metric that is reported in almost every campaign, which is good. The poor thing is that most companies only have history data relating to their own company and that's like training for the Olympics without knowing the qualifying times. CTR is also very dependable on the type of marketing, the more focused and intensive the message and location, the higher CTR should you expect. If you're doing a mass campaign, expect CTR below 1% in most cases, where anything below 0.4% is performing poorly and between 0.41% and 1% is average performance.

CR% (Conversion Rate) #

A ratio that evaluates the effectiveness of your site at converting a Unique visitor into a consumer. By consumer we mean someone who has taken the action you wanted them to take. The action could be anything you deem important such as filling in a web form, sending an email, downloading a product white paper, subscribing to a newsletter or purchasing a product. It is critically important to measure conversion rate by marketing channel otherwise spikes in (free) earned traffic may cause you to make bad decisions as the conversion rate goes down.

In order to calculate conversion rate you divide the amount of actions by the total amount of visits to your site.

1000 actions / 10000 visits to the site = 10% CR%

Why this is important Conversion rate is almost always a KPI as it is a good indicator of your businesses ability to persuade people to take the actions you want them to take. It is vitally important to understand each marketing channels effectiveness at converting visitors into consumers across different stages of the customer lifecycle so that you can plan your efforts.

What to watch out for While CR is a very important metric many companies fall into the trap of "optimising for conversion" without thinking about profit. You could suddenly get millions of new visits from an earned marketing channel that drops your conversion rate but increases your sales (and therefore profit) so make sure you measure CR by marketing channel. Additionally also measure profit per marketing channel before making any optimisation decisions.

The average web store has a conversion rate of 2%. That means that every two people out of one hundred unique visitors purchase a product from the site. As it is an average number, it is very reachable for most sites and should be the primary goal for any site selling products online. The pick of the litter can convert half of their traffic into consumers, while companies like Amazon are converting at about 17% - which is a very good conversion looking at the traffic they get.

Profit Per Marketing Channel #

As a business you need to understand the profit margins you make across each marketing channel. It's worked out by totalling your sales profit from each channel. Profit is simply revenue minus total costs (fixed plus variable costs).

1000 products sold by owned media with a profit of €10 per sale = €10000 profit for owned media.

Why this is important By doing so you can plan future activities safe in the knowledge that the channel has been profitable in the past.

Revenue Per Mille (RPM) #

The revenue earned by 1000 visits to your website. It's worked out by totalling your sales revenue from each channel.

1000 visits from owned media generated a revenue of €100000 means the RPM is; 100,000/1000 = €100

Why this is important By doing so you can plan future activities safe in the knowledge that the channel has been driving revenue in the past. Comparing RPM across channels also allows you quickly see where the hot traffic comes from and is often easier to calculate than profit per channel.

Sharing Ratio #

The amount of shares or forwards from your posts and social marketing. Typically calculated by totalling all the tweets, likes, forwards from your efforts and then dividing that by all your posts over a given timeframe.

On Twitter: Sharing Ratio = # of Retweets Per Tweet On Facebook, Google Plus: Sharing Ratio = # of Likes or +1s Per Post On a blog, YouTube: Sharing Ratio = # of Share Clicks Per Post (or Video)

For instance let's say you send 2 tweets which are shared 10 times and 5 times respectively. The first tweet would have a ratio of 10, the 2nd 5 meaning that the first tweet was twice as popular.

Why this is important This metric shows you how to optimise the marketing content you have.

Do not confuse this with Twitter acceleration ratio. We still have no idea what that is.

Bounce Rate #

Bounce rate is the percentage of single-page visits or visits in which the person left your site from the entrance (landing) page without doing anything.

#Single page visits / total visits to the page = Bounce rate % 10,000 single page visits / 30,000 visits = 33% bounce rate

Why this is important This metric measures whether the reason people arrive at your site matches their expectations. If your content is irrelevant to your unique visitor they will leave without doing anything. Bounce rate indicates when you should change your content to better suit the reason people visit your site.

Churn ratio #

Measures how new customers or repeat customers opt-out, stop buying or stop responding to your offers. This is worked out as a percentage of customers who stop responding from all your customers that do respond. Critically important to measure this ratio over time to determine when customers are beginning to churn in greater numbers.

#Customers with no response / #customers = Churn ratio

Why this is important You measure churn to determine when customers are defecting to your competition and tailor offers (and start testing different ideas) with customers at different parts of the lifecycle. By determining when the best time to engage with your customers is to stop them churning you can increase the customer lifecycle duration, build a better brand and a better relationship with your customers.

Average order value (AOV) #

The monetary sum of all purchases divided by the number of orders. This tells you how much on average people are spending. You can multiply this number with your average total conversion and your site visitors to calculate estimated revenue.

#Sum of all orders / #orders = AOV $10,000 value / 1000 orders = $10 AOV

Why this is important This metric allows you to work out the sites potential value (by increasing conversion for instance) or the value of increasing the amount of traffic to the site.

If you liked this chapter, please recommend it to others.

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"Data, data everywhere and yet all decisions from the gut!" That just about encapsulates why our marketing strategies are faith based, why our websites are barely functional ("the CEO loves purple!"), and why we are not making the types of profits we deserve. I love this book because Steve and Markus provide specific advice on how to unsuck our lives! Buy. Don't suck. Win.
Avinash Kaushik
Digital Marketing Evangelist - Google
Author - Web Analytics 2.0
In your face and a Must Read for beginner and expert analysts alike.
Jim Sterne
Founder - eMetrics Summit
Author - Social Media Metrics
Chairman - Digital Analytics Association

About the authors

We have a single goal together, to make our customers a billion euros in profit. This won't happen in one year, it might take five years, but we will not stop until we have generated a billion of provable profit for our customers.

We love meeting and talking to new people! Get in touch with us. Come have a pint with us! We are available for projects, especially in warm places with great fishing opportunities and/or great beer.

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Markus Sandelin
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