Vanity Metrics vs. Performance Metrics

Hello Fellow Advertisers! Today I will be discussing the difference between vanity metrics and performance metrics. I’ll also cover their levels of importance when it comes to optimizing based on these variables within an AdWords account. Enjoy!

 

Full Transcript:

Hello everybody, and welcome to another episode of my video blog series. I am your host Nick Rennard. Today, we will be talking about vanity metrics versus performance metrics in terms of search engine marketing. I’m going to be reviewing some examples in AdWords, so I have some slides with examples for you to review here. Let’s go ahead and get started. We’ll talk about the definitions between what a vanity metric is and what a performance metric is.

Actually, it’s just a for fun exercise. I typed into Google vanity metric definition and performance metric definition, and these are what they wrote. They’re actually pretty accurate especially the vanity one. It says vanity metrics are things like registered users, downloads, and raw page views. They’re easily manipulated and do not necessarily correlate to the numbers that really matter. I like that definition, because it’s essentially saying that vanity metrics are not something that you should be interpreting as telltale of good performance or bad performance.

Performance metrics are going to be the opposite of that. The definition that they came up with was a performance metric is that which determines an organization’s behavior and performance. Performance metrics measure an organization’s conversions and performance, which I think is a little redundant to say that performance metrics measure an organization’s performance, but it is what it does.

This is something that we tell all of our clients is so important. It’s also one of the major things that differentiates our company from other companies is that we do always stay focused on the performance metrics, and we really try to filter out the vanity metrics. There are uses for vanity metrics, and I have a lot of blogs that I’ve written about many of the vanity metrics, which we’ll go over today.

It’s not they’re useless. It’s that when we’re talking about whether a campaign or an account, or a platform, or whatever is performing well or not performing well, vanity metrics are not going to be telltale performance, whereas performance metrics are something that we can look at and determine just from that metric whether or not this campaign is doing well.

What I’m going to be doing for each one of these slides that I go through is I’m going to give you an example of an actual account. I used an example of one of our accounts over the last two months worth of data. The data itself isn’t going to be all that relevant. I’ll just be talking about how we should be interpreting that data, and we’ll classify each of the columns that I’ll be reviewing as either vanity metric or performance metric.

I’ll be giving at a scale an average rating of importance on a scale of 1 to 10. I’ll ramble for a bit any additional notes that I think are relevant. Yeah, I’ll go and review that stuff with you guys too. Let’s go ahead and start here. Here is the table that I am going to be using. We’re going to start with cost here. What I want to review with you first is you can see each one of these columns here. I have cost, clicks, impressions, average cost per click, et cetera, et cetera.

Each one of these columns, this is the core columns that I look at whenever I’m in any given account. Just to start of saying even if I give one of these things a very high score, a very low score, it doesn’t necessarily mean that I only look at this, or I never look at this. I look at all of these metrics every single time I go into an account. I think one of the variables I actually give a score of 1 out of 10. Just because the score is so slow doesn’t mean that it’s not important. It means that in terms of performance or determining performance, it doesn’t have as much weight as some of the other ones.

It doesn’t mean that it’s not an important variable. It’s still important, and just because a metric is a vanity metric doesn’t mean that we shouldn’t be looking at it. It just means that there are different applications for it than determining good performance versus bad performance. The first one here is cost. Cost, I gave a 7 out of 10. The reason that I gave cost a pretty high score of 7 out of 10 is because … You can see the note at the bottom here. It says higher spend equals higher priority. That’s very true.

If we have a keyword that is spending, I don’t know, let’s say $100 a month, and then we have another keyword that spends $1000 a month, that keyword that spends $1000 a month is going to be more important than the keyword that spends $100 a month, because any changes or improvements that we can make with that keyword, whether we’re increasing the bids or decreasing or whatever, it’s going to have a higher impact on the account because it consumes more of the budget.

Keywords with lower spent aren’t necessarily not important. It just means that there’s less data to work with. You can see that the second note that I have here is statistical significance. A campaign for example this first campaign that is $30,000 worth of spending it, there’s definitely statistically significant data in that campaign, because it spent so much. It’s gotten over 10,000 clicks. We could definitely be sure that that data is very, very, very accurate to the 99th percentile.

Now, with some of these bottom campaigns, the ones that spent $100 or $400, we can’t necessarily be sure that some of those statistics are going to perform that way over a long period of time just because there is a very low amount of spent. Just buy this number of cost. Being able to see the difference between $30,000 over $100 gives us an idea of whether or not we should be taking the rest of the data in these other columns with a grain of salt or not.

Again, just to reiterate, the higher dollar account, we can be sure that these metrics are pretty accurate. With the lower dollar campaigns, we’re not as sure that those are going to perform like that over a longer period of time. That’s cost 7 out of 10. Let’s go and go to the next slide here, which is clicks. I also included impressions in here. Impressions, I actually don’t really look at all that often. That’s more of a metric to determine the click through rate. I threw it in here because they’re similar.

The overall score that I gave for clicks and impressions is 3 out of 10. I definitely classify clicks as a vanity metric. We look at clicks and impressions for the same reason that we look at cost, or the same reason that we look at cost. That’s to determine statistical significance. The first time, we were looking at dollar amounts. If we were looking at a campaign that had $100 worth of spent … We’ll actually go back to the previous slide. If we’re looking at a campaign with $100 worth of spent, like this one here, that looks not statistically significant compared to this one that has $30,000.

However, if we’re looking at two campaigns, both of them have $100 worth of spent, but the average cost per click in one of them is $2, and the average cost per click in another on is $.05, that means that within that $100 if you’re getting 5 cents per click, you’re going to have a lot of clicks. That means that the statistical significance of that one is going to be significantly higher even though both of those campaigns have the exact amount spent.

Cost is similar to clicks and impressions, and that we’re looking at it to determine whether or not they’re statistical significance with the data that we’re viewing. We’re confirming whether or not we should be over r under analyzing certain other columns in the account. The reason that it has a lower score than cost is just because budget is so much more important to people that clicks. If a client tells me that I want to be spending $4,000 a month, and then I come back and I tell them I accidentally spent $8,000 this month, they’re going to be pretty pissed at me.

However, if a client says that my target 4,000 clicks, and I say that I got them 5,000 clicks or 6,000 clicks, it just says a little bit less weight. Most people tend to look at things in terms of dollars, not in terms of clicks even though they can be used interchangeably, so cost is definitely something that I think is more important just because clicks can be … It can change so much. A display network click can cost downwards of 5 cents like in the example we’re just talking about. Then there are certain search network keywords that can cost up to $50 for a click.

Talking about paying for 100 clicks at $100 a click versus paying for 100 clicks at 5 cents a click, there is a big difference there. Cost is a little more accurate in terms of how consuming any given keyword might be in an account. Anyways, let’s move forward here. Next one is average cost per click, which I gave a score of 5 out of 10. I still classify cost per click as a vanity metric. It’s a little better, I’m sorry, than the clicks or impressions. The reason that I look at cost per click is for example, you can look in this account here. We see some of these campaigns have cost per clicks of $3. Then there are other campaigns that have cost per clicks of 60 cents.

If all those is equal between this campaign where the cost per click is $3 versus the cost per click being $1 or 60 cents or significantly lower than that, then what we can do in terms of account optimization if we’re trying to cut spent, or we’re trying to reallocate spent from under performers towards the good performers, we can try to bring down the cost per click of our higher cost per click keywords, something that has a cost per click of $15, and we can reduce the cost per click of that keyword by 10%. That’s going to have a much larger effect than reducing the cost per click on a keyword that is $1.

That’s pretty straightforward. You can see the first note here. It says budget allocation, that higher cost per click equals less overall traffic within a given budget. If we have a budget of $5,000 a month, and our average cost per click in one campaign is $15, the other one is $1, being able to make any optimizations on those $15 clicks is just going to have a higher impact on the overall what we can get out of that $5,000 a month budget. That’s the reason that cost per click or that I view that cost per click being important.

The last note here is that average cost per click is it directly correlates with quality scores. If you have a quality score of 10, or a quality score of 1, that’s directly going to affect what your cost per click is. If you can look at trends overtime of cost per click, of seeing like, “Okay, the cost per click has increased slightly over the course of 2016, or decreased, you can actually determine what’s happening with your quality scores assuming all else is equal. You can see if your quality scores are going up or down, which is cool, just by looking at these metrics. That’s cool.

Google doesn’t have a great way of looking at quality scores across the whole entire campaign or whole entire account, so cost per click is my second best variable that I use here. Anyways, moving forward, the next one here is click through rate. I actually gave this one a 1 out of 10. A lot of people will see this, and immediately disagree, and say that click through rate is amazing and so important. Again, just because I gave something a low metric does not mean that it is not an important variable. In fact, click through rate is actually the most important variable.

You can see the note down here. It says that click trough rate is relative, not comparative between campaigns and industries. The exception to this 1 out of 10 score here is with ad rotations. When you’re talking about an A-B split test between two different ads, click through rate is actually the most important thing that you could be looking at. The reason is that if your ad A for example, if you split this in 2 ads, ad A and ad B, ad A has a click through rate of 4%, and ad B has a click through rate of 2%, that’s insanely important to know.

That means that one of the ad, it gets clicked on twice as often as another ad, so you definitely want to be using whatever ad copy or whatever you’re using to get that twice as many clicks. You definitely want to be emphasizing that as much as possible. CTR is important, but it’s not important in terms of determining the performance of a campaign, which is why we classify it as a vanity metric. That’s about all I have to say about click through rate. I guess the last note that I want to put in here is going off the CTR being relative, and not comparative.

I’ve had clients come to me, and give me a budget, give me the keywords that they want to bid on and all that stuff. Then they say something along the lines of, “I want to see at least 4% click through rate.” It’s such an unimportant metric to be held to just because click through rate, it being t 4% or 8% or 10% or 2% or 0%, it’s not important. What’s important with your click through rate is you shouldn’t be comparing it to other industries and other campaigns, because it is going to be drastically different, and there’s no healthy medium.

You can see even the click through rate in this campaign. Some of the campaigns have a click through rate upwards of 22%, some of them are close to 0%. That doesn’t necessarily mean that each of those campaigns is doing good or bad. What we try to do with click through rate is just continually improve it over time. It’s going to be only relative to what your click through rate was within that campaign last month or the month before that. This first campaign for example, it has a click through rate of 4.38%.

Next month, my goal with that campaign would not be to try and get it up to this other campaign’s 22%. My goal would just be to make sure that I have more than 4.38% CTR by the following month. The important thing is that it’s always increasing. It doesn’t matter what it’s currently at, but if next month, it’s better than the previous month, and the following month, it’s better than that, and its keep improving over time, the reason that that is important is because click through rate is hands down the most important or most dominant variable within Google’s algorithm for determining quality scores, which is why we value it so highly when we’re doing ad rotations.

Getting your click through rate to slowly improve over time, it’s going to have the most weight on improving your quality scores. It’s very important to keep click through rate in mind. It’s just in terms of determining performance. It means next to nothing, which is why we give it that 1 out of 10. Anyways, that’s about all I have to say on click through rate. Let’s go and move ahead here.

Now, on to our first performance metric here, which is conversations or cost per conversation, or pretty much any piece of data that involves conversion. Cost per conversion if you have conversion values for your conversions like let’s say you say that a quote form is worth $200, your phone call is worth $100 to you, then you can use something like conversion value divided by cost. You get the idea. Anything that has to do with conversion is definitely a performance metric, definitely 10 out of 10.

The first note I have here is conversions are the epitome of performance. I mean, it’s the most important thing. If you’re a business, and you’re trying to get ecommerce sales, or you’re trying to get phone calls so that your sales team can generate revenue for your company, that’s what’s going to turn into dollars for your company so that you can make profit, your business can keep running, et cetera. Improving conversions is extremely important.

I don’t really think I have to say too much about that, because I think it’s pretty straightforward. One thing I will say is that you should be making weekly changes in your accounts based on your conversion data. If you look over the last 7 days worth the data for example, the data we’re looking at right now is over the course of 2 months for this particular client, but I would recommend coming in here every week looking at the last 7 days, and giving a little boost to the ones that did well.

Let’s say your threshold for cost per conversion is $50, any keyword that at a cost for conversion that was better than $50, or I guess would be lower, because a lower CPA is better, then you would want to give that a small little boost like 5% or 10% increase on their bids. Whereas something that didn’t meet that threshold there is “an under performer,” you want to be reducing bids on that.

You don’t only want to be looking at, and I’m probably [inaudible 00:18:22] a little far off here and getting into account optimization stuff, but you don’t only want to look at 7-day increments. You also want to look at larger time frames. I’ve written a couple blogs about keeping an eye on your date ranges in the past. It’s important to also look at how things are trending over longer periods of time as well.

While it’s important to be looking at the last 7 days, and giving boost to the things that are doing well, and they keep things current, it’s also important to look over for example, it’s July right now, I may go into an account, and look at all of the data from January 1st to now in July. If something has been spending money, and it’s not converting over a 6-month period, even if it’s not spending that much amount because something may not spend very much over the course of a month, they’re even 7 days, so our 7-day view, it’s going to fly under the radar just because it doesn’t spent a lot.

If it spends over the course of 6 months, it may actually be spending a lot of money, and not converting, so it’s important to be looking at longer than 7-day date ranges as well when you’re making a bit optimization changes based on conversions. Moving forward here, and this is actually the last one. This is impression share, which I also gave a score of 10 out of 10, and labeled it as a performance metric. Some people would hear that, and disagree with me immediately, because impression share doesn’t actually … It’s not actually telltale performance.

It doesn’t tell you how many sales you’re making. That being said, making bit optimization changes on your accounts based on impression share is hands down. Except for conversions, it’s the most important thing you can be making changes off of. It’s also one of the things that you could be aware of in terms of budget allocation, because if you have a campaign that has 100% impression share, for example this Brandy campaign right here has a 94% impression share.

Let’s say that campaign spends $100 a day, and you’re like, “Okay, this campaign is doing extremely well. I want to spend 10 times as much money in there.” Your impression share is already 94%, meaning that you’re already showing 94% of the time that you could be showing, so you can’t spend 10 times more in there, because there’s only 6% left for you to show. You could spend a little bit more, that last little 6%. That’s why impression share is so important, because it tells you how much more or less you could be spending in a campaign.

The more that you spend on a campaign, the more diminishing returns that you’re going to see. The reason that that happens is because to get into those higher ad positions, to show in the number 1 position versus the number 3 position or not at all, it’s going to cost you more as you go up the ranks like that. What that does is that increase your cost per click. If your cost per click is higher, so if you’re paying $10 a click versus $5 a click, at a certain point, that keyword is no longer going to be profitable for you if the cost per click keeps increasing.

Impression share is extremely important to look at, because it gives you an idea of where you’re going to start running in the diminishing returns in terms of your ad spent. I get this a lot where people say, “I want to show you for this keyword 100% of the time.” Showing 100% of the time for a keyword is easy to do. Set $1000 bids on the keyword, and let it run. You’re going to show number 1 every single time.

That being said, that doesn’t mean that that’s profitable for you. In fact, we very, very often do not want to be showing 100% at a time. The sweet spot for impression share is around 70%. It’s a really rough estimate. If your total impression share is about 70%, if you try to go any higher than that, you’re probably going to run into some pretty steep walls of diminishing returns. You probably don’t want to be spending too much more than that. Anything under that, like if you’re sitting at 40% impression share, then you can probably increases closer to 70%.

It gives you an idea of how much more you could be spending in that campaign. The two reasons that you would lose impression share, the first one would be getting outranked, which means that someone either has a higher bid than you or a higher quality score than you, or both. Then the other one is losing impression share to budget. Losing impression share to budget happens because people have budget caps on campaigns.

If you have a limit of spending $100 a day, and your campaign spends $100 by noon, then the campaign shuts itself off. Then any click that could have happened between noon and the end of the day is considered to be impression share lost budget, because you didn’t have more money to spend. Impression share is extremely important. It tells you where you’re getting outranked. If you’re losing a ton of impression share to budget, it means you need to open up your budget, or lower your bids.

I also have average position included in here. Average position is it’s similar to impression share, but not nearly as important. Average position by itself is actually not all that important. However, let’s say you have an ad that always shows in the number 3 position 100% of the time, what that means is that you would have a search impression share of 100%, but your average position would be 3. That means that you could still bid higher to try and show on a higher average position, but your impression share isn’t necessarily going to increase.

Even though that they’re similar, and that generally as your impression share increases, so does your average position. They’re definitely directly correlated. It doesn’t necessarily mean that you should only be looking at impression share. Average position is just that additional variable that is also relevant in terms of determining where your ads are showing.

Moving on here, so a recap of all these metrics. The vanity metrics, we have cost, clicks and impressions. We have average cost per click. Actually, I may have been mistaken in giving average cost per click only 5 out of 10. Maybe the cost in average cost per click should be switched just because average cost per click … I always say that anything that has a denominator is usually more important than variables than don’t, so like cost per conversion or cost per click, or anything that’s divided by another variable is usually more telltale of performance.

Anyways, these are arbitrary and also situational. Then we have click through rate with a very low vanity metric score the only exception being with ad rotations, where it turns into a 10 out of 10, and it becomes extremely important. Then our performance metrics here, the two most important performance metrics that you should be making changes on in your account are your conversion data and your impression share data.

Anyways, thanks for watching. I hope that you guys find this information useful. Feel free to post any questions, comments in the comment section below. I will see you guys next week. Happy advertising.

 

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