This is a guest post by Leslie Van Zee. Leslie Van Zee is the marketing manager for Vantage Local, a digital agency that specializes in online display advertising for local businesses. You can read their blog at www.vantagelocal.com or follow them on twitter @VantageLocal. If you’d like to guest post on this blog, check out the guidelines here.
For small business owners, it can be difficult to know if the investments you make in online marketing truly bring you the return that you want. Large companies frequently have ways in place to measure their ROI on particular investments or marketing strategies, but if you’re an independent business owner, you may feel like you don’t have the capability to calculate you ROI, and the metrics themselves may seem complicated. However, when put into layman’s terms, most business owners can learn to calculate and understand ROI and ultimately use this information to create successful online marketing strategies.
Calculating ROI only requires very basic math – it is the net amount you earn from the new customers brought in due to your marketing, divided by the amount it cost you to run the marketing. The formula looks like this:
(Value Created – Amount Invested)
In order to sum up the necessary parts of this however, it is helpful to understand some additional terms that you will run across in discussions about online advertising.
CPA: It’s Not an Accountant
CPA stands for “cost per acquisition.” Knowing your CPA figure tells you how much each customer that walks through the door has cost you in ad and marketing expenses. Calculating CPA gives you a realistic understanding of how much you’re paying to bring actual customers in. For a small business that is using multiple advertising methods, it can be difficult to know which channel contributed the most to each customer’s decision to buy.
CPM: What Is an “Impression?”
CPM basically stands for “cost per 1000 impressions.” An impression refers to a page or ad view, so CPM tells you your cost per person who views an ad or page. This figure will tell you how much you’re paying for each view of your ad or page. Knowing this figure can help you gain a realistic idea of how many people really see your ad or view a page promoting or branding your business. You can use this figure to your advantage when figuring out how many people your ads and pages actually reach, especially when you want your campaign to increase brand recognition.
Knowing these Costs Is Essential to Your Bottom Line
A lot of small business owners make the mistake of thinking that their advertising or marketing dollars are reaching people when they aren’t. Running a spot on radio, for example, can reach a large number of people, but if your run a local business, only those within a certain distance of your store or office are likely to become customers. The ability to target online advertising to specific geographic regions has made it a much more appealing tool than traditional advertising.
Have you sat down recently and looked at a breakdown of your costs so that you have a realistic understanding of how much your business pays out to attract a new customer?
This post was written by Leslie Van Zee of Vantage Local – experts in local online display advertising. For correspondence or questions about online display, visit www.vantagelocal.com or follow us on Twitter at @VantageLocal.