ClickThrough Rate: at surface it looks promising, but if you dig deeper, it turns out it’s the worst KPI to track.
As you know, in the modern digital era we can track virtually anything. This fact alone has a benefit that everything is trackable and everyone “accountable”, but on the same hand it gives us so many elements to track (Key Performance Indicators – KPIs), that one might find hard deciding on what they should track.
I had been a victim of this, tracking vanity metrics like CTR, which are appealing to marketers, but not indicative of ROI.
In this post I am going to show you some pitfalls, how to counter them and the role of ad pricing, with examples.
1. ClickThrough Rate (CTR) – a popular, but dangerous KPI
For some bizarre reason getting high CTR is like a drug for us marketers. If a platform has an average 1% CTR on its ads, we want to beat that by a high margin (i.e. achieve 5% CTR), so we can go brag to our other marketer friends and feel good about ourselves.
*Only if* all other parameters of the SaaS conversion process remain the same does a higher CTR yield better ROI.
This means that only if every conversion of the funnel: visitor —> free trial/sign up —> paid customer and their LifeTime Value (LTV) stays the same, does a higher CTR yield better ROI.
As you can imagine, this is rarely the case and I will explain why shortly.
I must point out though that this is one of the good things about growth marketing; we need to focus on what’s getting an ROI, not what’s popular or what makes us feel good.
Anyway, CTR should be among the last metrics to improve. Here is why:
When you go into a marketing channel for the first time, you want to break even. Rarely you will be profitable from the get go and more often you will lose money.
Now, and that’s the important part, when you lose money, you want to look into your metrics and give them context.
The reason for losing money might be seasonality, wrong angle/message of the ad or simply not statistically significant data. It is rarely a problem with CTR.
In fact, you might have a pretty good CTR, but you might be bleeding money and when you change the message of the ad, have lower CTR but be profitable.
If you evoke curiosity or show a crazy offer in your ad, you will get some good CTR, but they might not convert because either your landing page wasn’t effective or you overpromised and underdelivered.
On the other hand, prequalifying the person who views your ad before clicking, might help your conversions, as long as your landing page stays consistent. One way to do that is to go really niche in your ad targetting and call them out in the ad.
Example: Target real estate agents and say in your ad “XYZ software is ideal for real estate agents”.
Ideally you will want to check every step of the conversion process, from the ad to becoming a paying user, and see where the numbers are off and need improvement.
If all the numbers are way off, or you struggle getting traction, then maybe that’s not the most lucrative advertising channel. But, if all numbers are as usual and CTR is bad, then of course you have to work on that.
When all the metrics are way off, more often than not, either the targeting or the core offer is off and you need to pivot.
2. Differences in CPC, CPM and Fixed Cost.
An important parameter that influences what you want to do with CTR and how much weight it carries, is whether you are running CPC (Cost Per Click), CPM (cost per 1,000 impressions) or fixed cost ads.
Let’s explore each one into more detail:
A) CPC: where you rarely need a high CTR
In CPC you are paying for each click, so it’s rarely a good idea to look into CTR.
An example is Google Adwords.
You are paying for each click a considerable amount of money, so you want to make the most out of it and have your visitors convert.
To do that, all else being equal, you need to qualify the prospects in your Google Ads before they click.
An example would be to mention your price in the ad, so you won’t have people who can’t afford your SaaS clicking it. However, mentioning the price might backfire, because it might be seen as a commodity or “cheap”. Always be testing.
There is only one occassion where you should care more than average about CTR, while running CPC.
That is when you want to scale A LOT and you have optimized every step of the conversion process.
In that case, you can go a little broader, caring mostly about driving massive, slightly less targeted traffic to your site or landing page, where everything else will take care of itself.
That’s because everything else is highly optimized and will make up for the slight loss in quality.
B. CPM: is ctr a factor with cpm bidding?
In CPM you are paying a fixed price per 1,000 impressions, so in general you want to get as many clicks as possible.
In short, the higher CTR you get, the lower your CPC will be.
(Short example: you pay $50 for 1,000 impressions. With a 1% CTR, you have 10 clicks and a $5 CPC.
With a 2% CTR you have 20 clicks and a $2.5 CPC.)
Now, at first glance it seems that in this case you would want to increase CTR by any means.
Although this is true to some extent (if you increase the CTR by changing only the image of the ad), there is an occasion where you achieve higher CTR by changing the angle/message.
For reasons mentioned earlier, this might improve your CTR, but you might end up hurting your conversions because your landing page is not consistent to your message, or you might end up hurting your ROI because the product doesn’t live up to your promise.
In this last case, you might see people signing up, but churning at a high rate…
C. Fixed cost: ctr might matter here
In this category we have ads like email sponsorships and buying a banner slot on a blog for a month or so.
Here in general you need to get a balance of clicks at a fair price without going too broad or too niche.
The key is that if you manage to make such an ad successful (profitable), you will need to refresh it much quicker than the others.
That is, after a few months you will have to change the message or the offer to appeal to another segment of the same audience.
The importance of CTR
Naturally, CTR can and is important… when used right!
Here is an example where CTR can help you:
- Running calculations to evaluate a new marketing activity
Before I run a new marketing activity I always run some math to see if I have a good shot at making it profitable or not.
If I buy 10,000 impressions of an ad, I will put an estimated CTR, keep the rest of my metrics (conversions etc) the same and see if it makes sense to buy the ad.
If I see that in the best case we break even or make a measly 10-20% ROI, of course I won’t take the risk and drop the potential experiment.
To wrap this up, in general, you are better off looking at the big picture when trying to improve a conversion funnel.
Then try to see at which step there is friction or in general the metrics are significantly worse than usual, and improve them.
ClickThrough rate (CTR) should be among the last metrics to focus on improving in most cases. The kind of ads you are running (cpc, cpm, fixed cost) plays an important role in the weight CTR carries.
Now back to you: What’s your most important KPI and why?
Let’s discuss in the comments below!