Many performance marketers continue to consider click-through rate (CTR) as a key performance indicator of their search campaigns’ effectiveness and evolve their PPC optimization strategy around that.

At the end of the day, what matters most is achieving the best ROI given your business objectives and budget, and you might optimize directly to CTR or ROI or a combination of success metrics to achieve that.

In order to have the best optimization strategy for your SEM campaigns, it is important to understand and quantify the influencers of ROI.

The Two Extreme Optimization Strategies

There are two types of strategies performance marketers consistently use as their campaign optimization strategy:

1)    Optimizing To A CTR Goal

One of the main factors influencing Quality Score (QS) is CTR, which affects your cost-per-click (CPC) and in turn affects your ROI. An increase in QS due to a boost in CTR would lower CPC and improve ROI.

CTR optimization

2)  Optimizing To An ROI Goal (Revenue-Per-Click & Cost-Per-Click)

Direct optimization to revenue or a conversion metric is a common strategy amongst performance marketers. Making sure an intelligent bid management is in use will be crucial to your campaign’s success.

ROI_GOALS1

While perhaps no marketer purely optimizes to CTR or ROI, they tend to skew towards one of these camps. Each method has its pros and cons. A CTR strategy will get you more clicks but does not guarantee the highest ROI. A purely ROI approach will get you the highest ROI but you potentially lose out on customers early in the sales funnel who might eventually convert.

ROI Breakdown

ROI equals Revenue-Per-Click (RPC) over Cost-Per-Click (CPC). Data analyzed from over two dozen advertisers using econometric methods (a simplified version of the equation is shown below) shows that 34% of ROI is influenced by RPC and 66% by CPC.

Bid management is by far the most important influencer of ROI. Forty-nine percent (49%) of ROI is influenced by bid management, 13% by other factors (i.e., marketplace, seasonality, etc.), and 4% by CTR. The data show the importance of having an intelligent bid management strategy in place for your SEM campaigns. But, does this mean a CTR maximizing strategy is a wasted effort?

ROI_MODELS1

 

A Deeper Dive Into The Relationship Between ROI & CTR

Previous studies have looked at the relationship between CTR & ROI by purely relying on correlations. A correlation analysis alone cannot determine the effects of CTR on ROI, and a more robust statistical technique is required to answer that question. These techniques enable us to control for all the factors that can potentially influence ROI.

From the chart below, we do see a relationship between the CTR & ROI — but not a very strong one.

SCATTERS

 

Applying statistical modeling techniques will allow us to quantify any statistically significant relationship between the two if it exists.

In this model, I control for position, CPC, industry, and bid management differences across the different advertisers in the data in addition to CTR.

The results show that there is a statistically significant relationship between CTR and ROI; but in terms of impact, it’s quite small. For a 10% increase in CTR, expect to see a 1.2% increase in ROI. This means that if you increase your CTR from 10% to 11% for a campaign with an average ROI of $5, the ROI will increase to $5.06 due to the improvements made in CTR.

Key Takeaways For Performance Marketers

  • Campaign managers should utilize both strategies above in optimizing their campaigns; main focus should be on ROI but do not completely ignore CTR
  • 49% of ROI is influenced by bid management; intelligent bidding is integral to a campaign’s success
  • CTR does have a small but statistically significant impact on ROI; a 10% change in CTR affects ROI by 1.2%

In Summary

Focus on optimizing your SEM campaigns for ROI but keep an eye on CTR. There is no need to purely optimize to CTR as it influences only 4% of ROI; but, it is important to account for it in your longer term strategy and make sure healthy CTR rates are met and maintained.

Intelligent bid management heavily influences ROI and is absolutely necessary to ensure your ROI goals are met.

Opinions expressed in the article are those of the guest author and not necessarily Marketing Land.

Related Topics: Analytics | Analytics & Marketing Column | Channel: Analytics

Sponsored


About The Author: is a Business Analyst at Adobe. He provides strategic cross-channel data-driven insights to fortune 500 companies across search, social, display and offline channels



Sign Up To Get This Newsletter Via Email:  


Share

Other ways to share:

Read before commenting! We welcome constructive comments and allow any that meet our common sense criteria. This means being respectful and polite to others. It means providing helpful information that contributes to a story or discussion. It means leaving links only that substantially add further to a discussion. Comments using foul language, being disrespectful to others or otherwise violating what we believe are common sense standards of discussion will be deleted. You can read more about our comments policy here.
  • Pat Grady

    “what matters most is achieving the best ROI given your business
    objectives and budget, and you might optimize directly to CTR or ROI or a
    combination of success metrics to achieve that.”
    You made some great points, but left us with “best ROI” and “optimize (ROI)”, without defining what that means. Yes, it’s outside of the scope of your article here, so… I look forward to your next article Hamed! I hope it addresses what the “best ROI” is.

  • Bruce Brownlee

    Nice post. When you get a plot that looks like the CTR v ROI above, it usually indicates that there are extra dimensions involved that have been flattened into the 2D picture. In some cases, finding just one more dimension, the right one, will convert this scattergram into a very well-ordered surface that completely makes sense. In the example above, a surface shaped like the inside of a cow bell would give you this result if you flattened it by ignoring the dimension that protrudes orthognal to the plane of the page (sticking out of the page). So then, what do you imagine could be the missing dimension?

  • vielmetti

    If I were spending money, and someone showed me a scatterplot like the one you have there, I’d wonder that there was any correlation at all and I’d look for another way to spend the money.

  • Dariusz Romanowski

    Pat Grady are right, its diffrence between best and optimized Return Of investment:) Can you explain us what metrics do you mean?

    And btw..what program do you use to make that chart with relationship between the CTR & ROI?

 

Get Our News, Everywhere!

Daily Email:

Follow Marketing Land on Twitter @marketingland Like Marketing Land on Facebook Follow Marketing Land on Google+ Subscribe to Our Feed! Join our LinkedIn Group Check out our Tumblr! See us on Pinterest

 
 

Click to watch SMX conference video

Join us at one of our SMX or MarTech events:

United States

Europe

Australia & China

Learn more about: SMX | MarTech


Free Daily Marketing News!

Marketing Day is a once-per-day newsletter update - sign up below and get the news delivered to you!