Profit generated from referrer Amount spent on advertising with referrer
A related measure, which does not take profitability into account is return on advertising spend (ROAS) which is calculated as follows:
Total revenue generated from referrer Amount spent on advertising with referrer
These tend to be only relevant to interactive advertising or sponsorship. They are the equivalent of offline advertising metrics, i.e. brand awareness (aided and unaided), ad recall, brand favourability and purchase intent.
Here the value of gaining the customer is not just based on the initial purchase, but the lifetime value (and costs) associated with the customer. This requires more sophisticated models which can be most readily developed for online retailers and online financial services providers.
Example: A bank uses a net present value model for insurance products which looks at the value over 10 years but whose main focus is on a 5-year result and takes into account:
• acquisition cost
• retention rates
This is valuable since it helps give them a realistic 'allowable cost per sale' which is needed to get return over 5 years. They track this in great detail, for example they will know the ROI of a Google Adwords keyphrase against an e-spotting keyphrase and will then select keyphrase and bid strategies accordingly.
Figure 8.12 shows an example of effectiveness measures for an online ad campaign for an insurance product. Here an opportunity or lead is when a quote is requested. Note that the cost of acquisition is high, but this does not take into account the synergies of online advertising with offline campaigns, i.e. those who are influenced by the ad, but do not click through immediately.
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