Operating a business in 2019 pretty much requires you to have some digital component in place. Unfortunately, most business owners don’t really understand digital as a channel, and how it plays a role in their business. The terms are vast, always changing, and sometimes downright confusing.
This breakdown in ability to communicate about digital limits their potential not only to be successful, but to evaluate organizations hired to maintain their success.
Wether you run an e-commerce website focused on direct sales, or a B2B company focused on lead generation, I’ve compiled a cheat sheet of terms, explanations, and how they apply to your business.
What does “Marketing Funnel” mean?
A marketing funnel is a marketing tactic that divides your audience into smaller segments based on where they’re perceived to be in the purchasing process.
Why are “Marketing Funnels” important?
The purpose of a marketing funnel is to move people from the research phase, to a purchase, and then turn them into an advocate for your brand. It’s important to have multiple stages built out in these funnels to ensure that you’re capturing the attention of your potential customer and bringing value to them. A consistent display of value builds trust in your customer. Trust, often results in sales.
What Does “Impressions” mean?
Impressions are the amount of views and interactions any given piece of online media, but most typically digital ads, has received.
Why Are “Impressions” important?
Theoretically, more impressions mean higher visibility for a brand. The more people who see you are now aware of you.
CTR – Click Through Rate
What does “Click Through Rate” mean?
CTR means how often people see your ad/promotion and then click it to see the offer on the other side.
(Impressions / Clicks)
Why is “Click Through Rate” important?
A high/strong click through rate is usually a good indication that the creative and messaging you’re using is resonating with the audience you’re targeting. It also typically means that you’re spending less per click on average, thus lowering overall campaign spend.
CPC – Cost Per Click
What does “Cost Per Click” mean?
CPC is the average of your total advertising spend vs the amount of times someone has clicked your advertisement.
(Advertising Spend / Clicks)
Why is “Cost Per Click” important?
CPC actually means a lot of things, and it’s important to understand what averages are for your industry. Higher costs for average CPC typically mean that the audience or term is more directly correlated with a “buyer”, someone who’s time to close for a purchase is relatively short. Lower average CPC’s are typically associated with someone who’s much earlier in the buying process, thus resulting in a longer sales cycle. Your goal as a business is to match, or beat these averages. By doing so, you’ll ensure that your marketing spend is best optimized.
CR – Conversion Rate
What does “Conversion Rate” mean?
Your conversion rate is the average of your total clicks vs the amount of sales.
(# of Clicks / # of Sales)
Why is “Conversion Rate” important?
Conversion rate is the culmination of your audience, ads, landing page, and offer. There are many moving parts that dictate what your conversion rate will be. Even when everything is perfectly aligned, variables like market demand will also play a factor. Understanding what average conversion rates are, and beating them will yield a more profitable campaign.
CPS – Cost Per Sale
What does “Cost Per Sale” mean?
CPS is the average of your total advertising spend vs the amount of times someone has purchased your product/service.
(Advertising Cost / # of sales)
Why is “Cost Per Sale” important?
Hands down, CPS is one of the most important values on this list. It let’s you know on average, what it costs to acquire a new customer. A “good” CPS will vary depending on your industry and product/service. It will depend on what your margins as a business are, and what your cost of goods sold are. At the end of the day, you want to make sure that your advertising efforts minimize your CPS as much as possible.
AOV – Average Order Value
What does “Average Order Value” mean
AOV is the average of your total earnings vs the amount of sales you’ve made.
(Gross Sales / # of sales)
Why is “Average Order Value” important?
Understanding how much you sell on average per order is a really important metric. Sometimes your most popular product/service may not be your most profitable one. Finding effective ways to improve your average order value can help improve overall profitability.
What does “Order Frequency” mean
Order frequency is the average of how many sales a single customer makes.
(Total Sales / Total Customers)
Why is “Order Frequency” important?
Understanding and improving what your order frequency is typically yields a more profitable business. It’s easier to convince an existing customer to invest in you than a cold prospect.
LTV – Lifetime Value
What does “Lifetime Value” mean?
LTV is the total value a new customer brings to your organization on average.
(AOV x Order Frequency)
Why is “Lifetime Value” important?
In my personal opinion, LTV is the most important metric in this post. It helps you understand how valuable your customers are, and helps provide you with fuller marketing decisions. People mistakenly make a lot of their decisions based on CPS, when in reality, their LTV is probably more than enough to indicate a healthy, effective campaign.
ROI – Return on Investment
What does “Return On Investment” mean?
ROI is the average of your net profit vs the amount you’ve spent on advertising.
(Net Profit / total advertising spend)
Why is “Return On Investment” important?
ROI is another highly important term on this list. It provides you with a pulse on the health of your campaign. Like CPS, average ROI is very variable depending on the product / service you provide. Higher ticket items tend to yield higher ROI’s. Any ROI beyond 1 is successful (you’re earning more then you’re spending). ROI is often mistakenly compared directly to CPS, it actually should be compared directly to your LTV.