ROI: The Cinderella of Stats?
I'm a firm believer of ROI (return on investment) as the best measure of effectiveness, but ROI doesn't just measure your copy's effectiveness. It includes your market, your offer, and your copy.
Those who talk about conversion rates alone are missing the boat. However, there's a caveat to that: if you are using conversion rates as a comparison figure, it tends to be more relevant.
For example, to say that my copy converts at 15% means nothing by itself (but it is still good for marketing purposes for some markets--and I use it myself--for those that are convinced of an "industry standard" of 1-2%). For all you know, my copy is giving away John Reese's "Traffic Secrets" package for $10. Then 15% sounds pretty low, doesn't it? (unless you factor in the credibility of such an offer, which is a very real issue to address).
But conversion makes sense when the market and offer haven't changed. Only the copy has. An example here is Mike Morgan's improvement over Sterling Valentine's conversion rate on a particular product. It was a staggering 655% improvement on conversion over the control. If you're on David Garfinkel's mailing list, you probably saw his email on that. And David is a very credible guy when it comes to this stuff. Kudos to Mike!! The market and offer didn't change. Only the copy. So attributing that magnificent increase in conversion can be directly traced to the copy that Mike did.
But I still stand by ROI when it comes to measuring an ad's effectiveness. If I have an ad that pulls in $4 for every $1 I spend (that's a 4:1 return) and I bump that up to a 10:1 return, then the difference in conversion rate is a useful metric. But the conversion rate by itself means little without knowing the other dynamics in play.
Another figure tossed about is traffic. "I get 100,000 hits a month." My answer: "That's great, but what is your ROI? Are you losing money or making money?" You certainly can't tell from the number of hits.
If I pay six figures to get traffic, I'm going to get traffic. But does it pay for itself? Does it sell? Is my ROI worth it? That's the key question.
I believe that the percentage of people who buy after seeing your message (i.e. your conversion or response rate) is useful only as a relative comparison, but even then there are some caveats.
For example, if I get 5% to buy as my control, and then I beat that control by getting 9% to buy, that's a useful comparison stat. But the 9% by itself is useless unless compared against 5%. I could get 9% to buy and still lose money. Then it's a losing ad, whether it's the market, offer, the copy, or any combination that's the culprit.
But if you say I have a ROI of 725% from a market/offer/ad, then you know I am making money with it from that stat alone. There's no need to compare it with another piece's results.
I'll take it a step further.
What if split test "A" gives a 5% response, that is 5% buy. And split test "B" gives a 9% response. Comparing the two would indicate that split test "B" wins, right?
But if you measure your lifetime customer value, you may find that split test "A" yields a better ROI in the long run than split test "B", when you factor in back-end offers and such. All things being equal, that's unlikely to happen unless the offer differs between the two split tests. But it's just a point to illustrate the kind of thinking that needs to go into testing.
Too many people just split test the front-end offer. If I'm split testing price (which usually goes to the offer, not the copy...unless you change the copy to support the price change, then it's the offer and copy that changes, but I digress), I may find out that I sell less with a higher price point on the front-end, but my back-end sales increase as a result, ultimately giving me a higher lifetime ROI. In fact, some sellers purposely set the initial price higher to weed out the tire-kickers. They've got their sights on the back-end sales.
Others purposely set their front-end price lower, because they want to build their list more. It all depends on your marketing plan, and your long-term, or lifetime ROI plays a huge factor in determining whether it's successful or not.
It really doesn't need to be that complex. ROI is a good measurement for any business plan or marketing plan.
And that's what I almost always go by.
Those who talk about conversion rates alone are missing the boat. However, there's a caveat to that: if you are using conversion rates as a comparison figure, it tends to be more relevant.
For example, to say that my copy converts at 15% means nothing by itself (but it is still good for marketing purposes for some markets--and I use it myself--for those that are convinced of an "industry standard" of 1-2%). For all you know, my copy is giving away John Reese's "Traffic Secrets" package for $10. Then 15% sounds pretty low, doesn't it? (unless you factor in the credibility of such an offer, which is a very real issue to address).
But conversion makes sense when the market and offer haven't changed. Only the copy has. An example here is Mike Morgan's improvement over Sterling Valentine's conversion rate on a particular product. It was a staggering 655% improvement on conversion over the control. If you're on David Garfinkel's mailing list, you probably saw his email on that. And David is a very credible guy when it comes to this stuff. Kudos to Mike!! The market and offer didn't change. Only the copy. So attributing that magnificent increase in conversion can be directly traced to the copy that Mike did.
But I still stand by ROI when it comes to measuring an ad's effectiveness. If I have an ad that pulls in $4 for every $1 I spend (that's a 4:1 return) and I bump that up to a 10:1 return, then the difference in conversion rate is a useful metric. But the conversion rate by itself means little without knowing the other dynamics in play.
Another figure tossed about is traffic. "I get 100,000 hits a month." My answer: "That's great, but what is your ROI? Are you losing money or making money?" You certainly can't tell from the number of hits.
If I pay six figures to get traffic, I'm going to get traffic. But does it pay for itself? Does it sell? Is my ROI worth it? That's the key question.
I believe that the percentage of people who buy after seeing your message (i.e. your conversion or response rate) is useful only as a relative comparison, but even then there are some caveats.
For example, if I get 5% to buy as my control, and then I beat that control by getting 9% to buy, that's a useful comparison stat. But the 9% by itself is useless unless compared against 5%. I could get 9% to buy and still lose money. Then it's a losing ad, whether it's the market, offer, the copy, or any combination that's the culprit.
But if you say I have a ROI of 725% from a market/offer/ad, then you know I am making money with it from that stat alone. There's no need to compare it with another piece's results.
I'll take it a step further.
What if split test "A" gives a 5% response, that is 5% buy. And split test "B" gives a 9% response. Comparing the two would indicate that split test "B" wins, right?
But if you measure your lifetime customer value, you may find that split test "A" yields a better ROI in the long run than split test "B", when you factor in back-end offers and such. All things being equal, that's unlikely to happen unless the offer differs between the two split tests. But it's just a point to illustrate the kind of thinking that needs to go into testing.
Too many people just split test the front-end offer. If I'm split testing price (which usually goes to the offer, not the copy...unless you change the copy to support the price change, then it's the offer and copy that changes, but I digress), I may find out that I sell less with a higher price point on the front-end, but my back-end sales increase as a result, ultimately giving me a higher lifetime ROI. In fact, some sellers purposely set the initial price higher to weed out the tire-kickers. They've got their sights on the back-end sales.
Others purposely set their front-end price lower, because they want to build their list more. It all depends on your marketing plan, and your long-term, or lifetime ROI plays a huge factor in determining whether it's successful or not.
It really doesn't need to be that complex. ROI is a good measurement for any business plan or marketing plan.
And that's what I almost always go by.
posted by John Ritskowitz at
6:00 PM
1 Comments:
Your article was a worthy read with respect to measuring PPC ads. I cam here by the way of the PDF article with a link in it.
Thank you!
By
Anonymous, at 9:03 AM
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