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Paid Search Math

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I’d like to show you how metrics are interrelated in Paid Search and how that can influence the tactics you take to meet your goals and the perception of your campaign’s performance.

For all of the different variables used in Paid Search (Impressions, Clicks, CPC, Cost, Leads, CPL, ROAS, etc.) each can be a Dependent (Result), Independent (Input) or Antecedent (Influence) variable. In addition, each variable can be used as a Goal in and of itself, as a Result or as an Input in optimization.

Consider the Cost per Click (CPC). The traditional definition is CPC = Cost / Clicks (i.e. CPC is a Dependent variable) or CPC = $##.## (CPC is an Input variable). However, consider the following:

CPC = x(Bid), where 0 >= x <= 1

CPC = CPL * CTL, (Cost per Lead * Click to Lead)

CPC = CPE * CTE, (Cost per Enroll * Click to Enroll)

The fact that the CPC is a function of the CPL, CTL, CPE, and CTE means that it is also an input in these calculations. Therefore, if your objective is to improve your Click to Lead rate, changes in the CPC will affect that metric: CTL = CPC / CPL, so an increase in the CPC results in a higher CTL, provided the % increase in the CPC is larger than any % increase in the CPL.

To increase your CPC we need to go back to the CPC = x(Bid) formula. The x is a bid adjuster, in essence a combination of yours and your competitors’ Ad Rank. So an increase in CPC can be achieved by increasing your bid or alternatively, a worsening of your bid adjuster through a decrease in your Quality Score (which is predominately comprised of your CTR), or a change in the Competition (the number of, their Ad Rank, their Bid).

We now see that the CTL is a poor goal to optimize against and that the CTL can be impacted by events outside of our control. Perhaps more importantly, we see that looking at this metric as a barometer of campaign performance can be misleading – the CTL could be down because we lowered our CPC due to improvements in our Ad Rank.

The CTL, like most Paid Search metrics, can influence and be influenced by, other Paid Search metrics. These numbers often work at cross-purposes, so an improvement in one can lead to a worsening of another. The secret is to determine which metrics to optimize. I’ll cover that in a future article.

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