Advertising performance must first be tracked before being strategically improved.
No matter what aspect of a business you’re working to improve, you’ll need to define success. What would it look like for that aspect to get better? How can you measure it?
By choosing key performance indicators to track and analyze, you can gain a better understanding of your progress over time. That’ll help you make more effective and targeted business decisions.
The same logic applies to advertising. We’re often considering the ways in which advertising is like an art, but we also find some instances where we can use scientific thinking and processes to better understand marketing. What works and why? Sometimes numbers can show us where we’ve been, as well as chart the path forward to success.
We would never suggest anyone ignore the less-tangible, more artistic, soft skills that make for great advertisements. But we are suggesting that marketers use data analytics too.
Let’s start with an equation that Wizard of Ads finds incredibly useful: The Advertising Performance Equation. We like to start here because APE takes into account three other advertising assessment equations we value as well. Read on to learn more!
What is an APE or the Advertising Performance Equation?
The “APE” is the Advertising Performance Equation, where the goal is to determine sales volume.
Sales Volume = SoV × IQ × PEF × MPo
Before we can understand the APE, let’s dive into the three different equations that it’s comprised of:
- Share of Voice × Impact Quotient = Share of Mind
- Share of Mind × Personal Experience Factor = Share of Market
- Share of Market × Market Potential = Sales Volume of the Advertiser
By taking Share of Mind, Share of Market and Sales Volume of the Advertiser into account, APE offers a holistic, broad advertisement assessment.
Why is Advertising Performance Equation (APE) Important for Advertisers?
With an understanding of sales volume, advertisers can trace back what factors influenced a campaign’s success or lack thereof.
Let’s break it all down a little bit more to see why this equation matters so much to advertisers.
Share of Voice
Share of Voice (SoV) is the percentage of the total market that your company occupies with its advertising. You can analyze SoV in different media. For example, if none of your competitors are on Social Media, but you are, then you’ll occupy 100% of the Share of Voice for your industry. But, you might only have a small percentage of the SoV across all marketing media for your category.
An ad’s ability to convince a viewer is its Impact Quotient (IQ). Average ads can be assigned an impact quotient of one (1). Ads that are twice as convincing can be assigned a value of two (2), and so on.
Share of Mind
Share of Mind (SoM) is the result of Impact Quotient (IQ) on Share of Voice (SoV). In other words, how much did the IQ increase or decrease the SoV? If you have a small SoV because of a small budget compared to your competitors, you could make up for it with influential, convincing ads that have a high IQ. If your competitors spend a lot of money spreading around ineffective ads, then your Share of Mind (SoM) could surpass theirs. What would it take? You’d need excellent advertising materials from your company.
Personal Experience Factor
Personal Experience Factor (PEF) is determined by a customer’s previous experiences with your brand, products or services. If they’ve used your company before with a good result, then they’ll be more likely to return for more purchases. Think of this as your reputation. A neutral reputation should be considered one (1). Advertising cannot make an impact on your PEF, since the actual product or services will determine that. It’s more than just branding for this one.
APE is influenced by all aspects of your business and brand, which means its predictive force is powerful. By reaching into copywriting, scheduling, pricing, production, reputation and more, you’ll be sure to get a holistic understanding of how you’re doing with your advertising.
If you’d like to better understand how your marketing is working, and how you could make it work better for you, then utilize us at Wizard of Ads. Contact us today to learn more about how we can help you find the success you’re after!
What Other Formulas are Used in Advertising?
While we think the APE is a great start when it comes to understanding your advertising success, there are other formulas we find useful. We’ve chosen seven to highlight, and we think all businesses could benefit from calculating them and tracking them.
Here are seven other formulas used in advertising!
Click through Rate (CTR)
Formula: CTR = (Number of clicks / Number of views) X 100
Click through rate (CTR) helps you understand the overall performance of your advertising campaign. Of all the people who view your ad, the CTR represents the percentage of people who actually click your offer or engage with your Call to Action (CTA). This can also offer you some information about how compelling different parts of your advertisements are. If you have tons of views, that might indicate your headlines are compelling. If you have tons of views, but very few clicks, then your offer, CTA or overall advertisement is probably sub-standard.
Cost per Mille (CPM)
Formula: CPM = (Cost to Advertiser / Impression ) X 1000
Cost per Mille (CPM) helps newer brands estimate how established they are in their industry. Online advertising that focuses on CPM can help brands increase their exposure in an efficient, scalable and sustainable way. Brands can often spend less money to acquire each impression as their brand grows influence and market share. The lower your CPM, the higher your brand’s power.
Cost per Click (CPC)
Formula: CPC = Cost to Advertiser / Number of clicks
Cost per Click (CPC) is more specific than CPM. With impressions, the viewer doesn’t have to engage with the ad for it to count. With CPC, the viewer needs to click or actively engage with the advertisement for it to count. This model tends to be more widely used than CPM. With impressions, each one still has a cumulative effect on the audience’s overall actions, but it is less specific and takes time. In theory, multiple impressions over time (most believe seven (7) is the magic number) will lead to converted clicks, and then sales.
Conversion Rate (CR)
Formula: CR = (Number of Conversions / Number of Clicks) x 100
Conversion Rate (CR) is best used to track revenue generated from advertising campaigns. If you run an ad that’s effective, your conversion rate will be high. That means that many of the people who viewed the offer chose to move on to the next stage of the sales funnel. If 100 people click on your ad, but only 1 of them ends up clicking through to purchase, then your conversion rate is 1%.
Cost Per Action/Acquisition (CPA)
Formula: CPA = Cost to Advertiser / Number of Conversion
Formula: CPA = Cost to Advertiser / (Number of impression X CTR X CR)
Cost Per Action/Acquisition (CPA) measures how much money it takes to get one customer to follow through with a purchase. Understanding how much it costs to gain a new customer helps advertisers understand how efficiently they’re working. If your ads are great, and you’re generating tons of new sales, is that always going to be great? What if you’re spending more money on creating and running your ads than the amount of money they’re bringing in? That could spell trouble for your business in terms of long-run success and resource management.
Cost Per Lead (CPL)
Formula: CPL = Cost to Advertiser / Number of Leads Generated
Cost Per Lead (CPL) shows marketers how expensive it is to produce leads from their ads. If an ad is expensive, then it better generate lots of leads. Maximizing efficiency here would mean spending as few dollars as possible to get as many leads as possible. This can be a delicate balance to find, but efficiency is everything when it comes to long-term success and scalability.
Return on Investment (ROI)
Formula: ROI = (Total Revenue – Total Cost) / Total Cost
Return on Investment (ROI) measures general financial efficiency. Are the dollars you’re spending bringing in less, more or the same amount of money?
No matter what metrics you use to track your progress, it’s important that you do choose some and stick with them. By seeing where you are now, you can set goals for the future and then track your progress along the way.
What metrics are you going to start with? If you need help choosing a starting place, or if you are looking for support throughout your advertising growth process, then you’ve come to the right place.
Wizard of Ads is committed to offering ambitious entrepreneurs and advertisers the tools, resources, information and support they need to find success. We’d love to work together.