Jason Nyback asked:
All advertising is an investment made in hopes of future returns. The better the ROI (return on investment) an ad provides, the more effective that ad is considered. For example, if an ad costs $1,000 to run but results in $10,000 in sales, the ad has delivered a sufficient return on investment. Because ROI can be difficult to determine exactly, Internet marketers must use other statistics to measure the quality of an ad campaign.
There are two main statistics you must monitor to evaluate the effectiveness of a banner ad and determine whether the ad has a good ROI: click through rate (CTR) and cost per sale (CPS).
Click through rate (CTR)
Click through rate is a great indicator of the effectiveness of an ad. The click through rate reflects the number of people who have actually clicked on an ad, versus the total number of people who saw the ad. For example, if an ad had 150,000 banner views and 5,000 people clicked through, the click through rate would be 3 percent (5,000/150,000). The higher the click through rate, the more effective an ad is considered to be.
Cost per sale (CPS)
Cost per sale compares the total cost of the advertising with the number of sales made as a result. While click through rate is a great indicator of an ad’s value, it doesn’t tell you anything about how much money the ad is making. The point of almost any ad is to make more sales. CTR only shows how many people who clicked the ad to come to your page – not how many people actually made a sale after getting there. To determine the cost per sale, you must determine how many sales you made from people who clicked an ad. You can look at cookies or use advanced tracking methods to determine this figure.
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