In this episode of In-Ear Insights, Katie and Chris discuss the alphabet soup of some common marketing metrics – CPM, CPC, CPA, ROAS, ROI, and CLV – what they mean, when they apply, and how to interpret them. How do you organize these metrics to tell a coherent story about the customer experience, and what insights can we glean from them? The episode finishes with an exploration of how metrics may not be mapped to correct objectives, especially for B2B marketing strategy. Tune in for all the details!
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Machine-Generated Transcript
What follows is an AI-generated transcript. The transcript may contain errors and is not a substitute for listening to the episode.
## Christopher Penn 0:02
This is In-Ear Insights, the Trust Insights podcast.
In this week’s In-Ear Insights, it is alphabet soup day, we’re talking Rojas ROI, CPA, CPC, CPM and CLV.
What the heck is all this about? You’ve heard some of these terms before, almost certainly in some of your reporting.
So the question is, what are they all for? When do you use? Which one? And which ones should you be paying attention to? So Katie, as somebody who looks at a lot of reporting for a lot of clients, what when you hear this huge bowl of alphabet soup combinations, what comes to mind for you?
## Katie Robbert 0:45
What comes to mind is that there’s a lot of confusion, most likely, because that’s a lot of data to contend with.
You know, if you start with return row as return on adspend, the first question is, well, are you even running ads, and if you’re not, then return on adspend probably doesn’t apply to you.
So it’s not a metric that you need to worry about.
If you are running ads, then it’s probably a good metric to know.
But then it gets confused with return on investment.
And so return on investment, which is ROI is the more common metric that companies use to benchmark against, you know, I put this much money and how much money am I getting back? Which is, again, a great question to ask.
And then you have the customer lifetime value, the CLT, the your CV to I don’t know, anyway, it’s the customer lifetime value, how much is any one customer worth, during their tenure with your company during the time in which you’re both engaged.
And that’s a harder metric to nail down.
If you’re like us, and you have services, you do consulting versus you sell a thing, like a refrigerator, and somebody goes away, and they never need another refrigerator, again, for the next like, 10 to 15 years.
But a good metric to understand, because this is a metric that once you have it, it can help you understand all of your other metrics.
So some of these metrics that we’re talking about are subsets of other metrics.
And so I don’t know, I mean, when I see all of these things in one place, it says to me that people don’t know where to start.
So I think Chris, one of our aims for today’s podcast, is where does someone start? And what metric is the one that they should be looking at?
## Christopher Penn 2:32
unsurprisingly, the answer is, what’s the outcome you’re looking for? Right? What do you say? It depends? It goes to bed.
It always depends.
Anything with measurement depends, because it depends on what you’re measuring.
This this three things, I think, are really important concepts that people don’t think about when it comes to stuff.
One is gross versus net, which are financial terms.
What did what did you take in money wise, right, which is the gross? And then what are you left with after you’ve taken care of your expenses, and so that gross versus net is really important, particularly for something like customer lifetime value, because there is a cost to continuing to serve a customer.
Just like there is a cost to acquire a customer and there’s the those three that have the letter C of them CPA cost per acquisition, CPC cost per click, and CPM cost per 1000 impressions, really focus on what we spend to get some kind of outcome.
But row wise ROI and CLV I think, are the ones that are a bit bigger picture.
Because now you’re starting to talk about that that money in money out kind of thing.
So realize ROI as you can extend to other marketing channels, because it really is that gross how much money you bring in? And then for the things you did to bring that money, and what did you spend on it? That’s your the so it’s it’s earned my divided by spent? That is, essentially what row was, and its variations are.
ROI is a much bigger picture question.
It’s a question about profitability.
So it’s earned minus spent, divided by spent, and that’s the one that marketers have the hardest time with, and they do the most wrong, because there’s that spent part is really complex.
When you run a Facebook ad campaign, for example.
Here’s the hard dollars you’re paying to to Mark Zuckerberg, right.
But there’s also the time that you’ve spent the employees that you put towards it, their salaries, their benefits, the electricity to power, the lights, all these things.
Essentially, if you didn’t have those things, you couldn’t do the thing.
And part of that has to go into that computation to say, what did this profit we made cost us which is different than what did this revenue cost us which is robust.
You can get and this is a Really important thing for ad managers.
So Stan, you can get positive return on adspend.
And get negative ROI.
You can, even though you earned money from your ads, it costs you so much to run the ads with all these extra costs, they actually lost money.
This is particularly true for companies that make a thing a product or service, like a shaving razor, the cost of goods to make this thing the plastic, the metal and stuff goes into the spent side.
And so you may find that you have no margin, and therefore, the ROI of your marketing is actually negative.
## Katie Robbert 5:36
So you are talking about equations and numbers and metrics, and I can understand why this is confusing.
So, you know, let’s just start with, you know, let’s start with return on adspend.
Just that one.
And so, repeat to me what that equation was,
## Christopher Penn 5:58
sure, the money that your ads earned, divided by the money spent.
## Katie Robbert 6:04
And so let’s pick apart because the money that your ads earned, let’s put that aside for a second, because the assumption is that is easier to calculate.
But I don’t know that that’s necessarily true, the money you spent for any of these calculations, is the harder thing to nail down.
And so this is where Chris, you’re saying that marketers are ad managers get it wrong, is that they’re assuming it’s just the hard dollars put in.
So if I put in $30 to an ad, and I get $60, in sales back, I can calculate my return on adspend.
But what you’re saying is, that’s not true, because what you haven’t calculated is the amount of time that that ad manager spent to, you know, talk with the client, come up with the creative, you know, maybe work with a third party to purchase images, you know, maybe have a second person edit, you know, the, you know, 15 minutes that you had to reset all of the ads, because Facebook said, Just kidding, I’m going to crash halfway in between.
and then the amount of time you spend with the Facebook ad rep saying Why do my ads crash? Why can’t I run them? Why did you disqualify them.
And so all of that time, adds up as well.
Plus, maybe you know, a fraction of your electricity bill, or maybe a fraction of your, you know, a water bill because you’re constantly dehydrated, because all you do is sit at your computer and try to get Facebook ads to work.
So there’s a lot of things that are factored in, that aren’t necessarily in that calculation, when you say it in that very straightforward way.
## Christopher Penn 7:45
Yes.
And with ro OS, specifically ro eyes does not take into account those other investment costs is hard dollars only.
It’s you see it most for e commerce, right? Where you can say, Okay, I sold, you know, this number of epochs or stress balls or whatever.
And, and advertisers like Facebook love for us, because it makes them look great all the time, you know, 200%, return on adspend 500%, return on adspend.
And because those soft dollar costs, and those overhead costs are not in rows, Facebook or Google Analytics, or Google ads can do that computation for you, and present you the results and say like, Hey, here’s what’s happened, where all those costs come in as on the ROI side where you say, Okay, what was the cost of this profit of this, you know, this net profit, because when you take away all those extra expenses from your gross, you’re left with your net.
And so it’s like, it’s now the cost of that net.
So real simple example, like you were saying, if you spent $5,000, on Facebook ads, you got $10,000 of revenue, but you have a real loss of 200% to x, right.
So for every dollar you spent, you got $2 back, but then you on the ROI side, you say it was $10,000 minus 5000 divided by 5000.
That’s one.
That’s what an ROI of 100%, which is still good, but then you have to add in your time, which is whatever your your salary is, for that period of time you’re doing stuff and all the other overhead your healthcare costs.
Typically, I know we’ve talked when we talked in the past, if you were to essentially take someone’s whatever you pay them and add 30% on top to account for all the overhead HR benefits all this stuff, you get a ballpark estimate of what that person really costs you.
So if somebody makes called $50,000 a year, they’re effectively making $25 an hour.
So you then have to factor that into your cost site.
You can get to a point, especially if you’re paying an agency or something like that, where you would have that that $5,000 spent What actually could be $10,000 spent in agency cost is up, and now your ROI is zero, right? Because you earn my spent divided by spent is it comes out to zero.
And so suddenly, that 200% ROI was zero ROI.
And now you’re not making money, you’re not making money anymore.
And so for you, as a CEO, of money marketing manager or the ad manager, maybe the CMO will be focused on root cause, but you as the CEO would be saying, No, but guys, accounting is saying we didn’t make any money last month, what’s going on.
## Katie Robbert 10:31
And I’ve actually had that conversation, when we did run ads for a short period of time, we were losing money, because we were working with an agency, and we were paying them plus the cost of adspend.
And it just to it, the numbers didn’t add up in a positive way.
The other metric I would throw out there that I think can be confusing, is a cost per click.
And so you have ro eyes, you have ROI.
And then you have cost per click.
And so if you think about it, logically, it’s the amount of money that it takes for someone to see the ad and click on the ad itself, but that doesn’t extend to them doing something with it, all they’ve done is clicked on it, and therefore you’ve had to spend money just for them to go, No, I don’t want this thing.
And so cost per click is a subset of return on adspend.
## Christopher Penn 11:24
That’s right.
And those three cost things are essentially, like a mini funnel like cost per CPM is cost per impressions, how much does it cost just to get in front of people cost per click is how much does it cost you to skip them to do something anything.
And then cost per acquisition is what it cost to actually get the goal achieved the conversion that you were looking for.
And those three things actually are very helpful diagnostic funnel to be able to say, Where is our ad campaign going wrong? You know, is the transition from cost per 1000 to cost per click, you know, 2%? Okay, well, if that’s the case, then our ads suck, people seeing them if they don’t like them.
Or if people click and go to the website, and our there’s a big difference between CPC and CPA because people again, hey, they, they got to the landing page, like, this is not what I thought I was clicking on, they leave, and you’ve spent all that money and you’ve gotten nothing for it.
And so those three metrics are really important to look at together, it’s it’s a bad idea to try and measure each one discreetly and say, Okay, we’re gonna make decisions just on CPM? Well, unless you’re running, purely branding exercises, you really don’t want to do that.
And some of them like CPC, have massive fraud problems, click fraud, where you have bots clicking, or people in lower wage countries just clicking on ads all day long, pumping up, prices and stuff.
And so you want to have all three sort of laid out together.
So you can see is something obviously, you know, the ratio, so off something obviously wants to they’re good diagnostics.
## Katie Robbert 12:59
It sounds like what you’re describing is, if you are running some kind of a campaign, whether it be you know, on Facebook or another platform, then you probably want to stack up your metrics to follow that funnel.
So you want to have CPM, and then CPC, and then CPA, and have that funnel into your return on adspend.
And have that funnel into your return on investment.
And so looking at all of those things, the conversion rate between each one, then to your point, Chris, you can say, Well, where’s this thing not working versus I don’t know enough, people aren’t doing something, let me just throw another $500 added to see if that helps.
Or let me go ahead and change the coffee because that might be the thing.
But instead, you are presenting a very logical and achievable something that we can all do.
Because all of the platforms have those metrics in them, just stack them up in such a way that you go in that logical order.
Similar to do with your sales funnel, so that you can say where is it broken? Is it broken? To your point between people seeing the ad and then doing something? Or do they do something and then they just don’t convert to buy something?
## Christopher Penn 14:09
Yeah, you’re saying it exactly right.
These measures instead of being a a bowl of soup, should be sequenced to tell a story from that very first impression CPM to CPC, to CPA to Rojas, to ROI to CLV.
If you line that up, it tells a story of the customer journey.
And it also tells you a hierarchy of reporting.
The ad manager needs CPM and CPC, right? The cmo needs Rojas and ROI sometimes the CFO and the CEO need ROI and CLV.
To understand you know what the big picture is? Because it may turn out down the road.
That Yes, you you had negative ROI on a campaign.
But those customers that brought in were customers for five years, and they were some of your best customers.
So, in reality, those ads that even though they had a negative ROI, at the time, have a positive customer lifetime value.
So you go, Oh, you know, we’re gonna make another, we’re gonna make a strategic decision now, to run a intentionally money losing campaign in the short term, because we know in the long term, it’s going to pay out for us.
So in that story, from beginning to end, the further into the journey you are, the higher up in the organization is probably going to go and the more strategic the decisions to get.
## Katie Robbert 15:37
So you’d mentioned at the start of this conversation, that people use these calculations when they’re running paid ads, but you can also use it for organic marketing.
So, you know, as we’re having this conversation, I’m thinking about the type of work that we do.
And we really focus in on email marketing and organic search.
Am I correct in understanding that you can take that same hierarchy of metrics and apply it to organic channel, such as email marketing?
## Christopher Penn 16:09
Absolutely, and this is where those software’s can start to come into play.
So you pay an email service provider to send emails, whether it’s your marketing automation software, like Hubspot, or whatever you pay money, hard dollars, for those emails, you pay somebody to write those emails, you pay somebody to send those emails, you pay somebody probably to process some of those emails.
So there is a clear spend on email marketing, if you didn’t do it, he would have this amount of time and money for something else.
And as long as you’re doing a good job with your Google Analytics, and your attribution tracking, and all that stuff, you should know like, what did this email bring in in terms of revenue, it may not be, you know, cut and dried.
If you’re not an e commerce company, it may be like, Hey, we brought in 40 leads that we know the average valuable E is you know, 100 bucks.
So this was worth effectively four to $4,000.
Once you have those numbers, then you can start to apply those calculations.
And this is where really important, you start to pay attention to some of those Rojas and ROI numbers.
Because for something like social media, people love to say social media is free pays, you know, posting on Facebook free, well, no, it’s not.
You’re paying somebody, it’s time to do that.
The creative team loves Community Manager, all that stuff, there’s dollar cost to it.
And if you’re getting no leads, or no sales and social media, then it’s actually you’re gonna have you might have negative Rojas de facto for us, right? Because you’re spending people’s time on this thing, and not getting money in, you’re gonna get negative ROI for sure.
And you may have, you know, no customer lifetime value from social media.
So to your point, it’s really important to try and apply this calculations as much as possible in an apples to apples way on all your marketing efforts.
So you can see like, what am I spending my time on, it is worth it.
When we did this.
For my my YouTube show, I used to do a daily YouTube show, I loved doing it.
No less than 1% conversions in my attribution model that’s like, okay, you know, 40 minutes a day, or no return, I could be doing other work in that time.
And so it went.
## Katie Robbert 18:15
Which is interesting, because you’ve applied it just to that one channel, because your intention with that YouTube show was to convert people to do something.
Now, what if your goal was awareness? was it doing that, and when you look at your customer journey across all of you, marketers, and we’re talking about two things, we’re talking about these metrics and calculations across just one channel, one channel at a time to see what it’s doing.
But then when you do a customer journey map across all of your channels, that’s a different kind of analysis.
And so if your goal with your YouTube channel was conversions, but it was driving awareness, then those are two very different things.
And maybe you’re okay with you to driving awareness, but it not driving conversion, as long as it’s leading people to your newsletter, or you know, your speaking gigs, or whatever the thing is.
## Christopher Penn 19:08
And that’s where we need input from people like you asked, What is the strategy we’re going for? And how does it align with the data we have? There’s a fascinating piece on LinkedIn recently, from LinkedIn, labs, saying that for B2B marketers, anywhere from two to 5% of your audience, it has buying intent at any given time 95% of audience has no buying intent whatsoever.
And so we’re sending all these emails and running those campaigns and telling people Hey, you know, contact Trust Insights if you need some help with change management, and 95% people I know that have no need for that right now.
And so LinkedIn is urging was to say, you should be measuring your campaigns on mindshare.
Do people remember that you even exist so that when that person does enter that buying cycle in a year, two years, five years down the road, they go, I’ve got a contact Trust Insights.
And from that perspective, measuring other objectives like branded organic search would be a proxy for saying, are we at least in people’s heads to be remember that we exist.
And so I would need a strategic decision from you as as the the team lead to sale, yeah, render organic searches.
Now a KPI is that, you know, if this number goes to zero, we’re going out of business, because we know that 95% of our audience is not going to buy anytime soon, you and I, and we had what a year ago, we had a customer sign up and do a pretty large project with us.
And this person who, who was the point of contact says, Yeah, I’ve been wanting to work with you for nine years now.
And this is the first opportunity get like, that’s a really long sales cycle.
But that’s what you’re saying is that this window of buying is so short, that running campaigns trying to get people at that point is gonna piss off the other 95% of people like I am not in a buying mode.
Stop telling me to buy some things.
Keep, you know, help me remember who you are.
So that when I go to buy something, I remember who you are.
## Katie Robbert 21:08
That’s so fascinating, because it.
And now I’m sort of stuck because now my wheels are spinning around a problem I was stuck on earlier.
But that clarifies it so well for me.
So really, our goal should not it’s not that our goal shouldn’t be conversions.
But it sounds like there’s such a small window that really our focus should be awareness education.
So that when someone is like, Oh my god, I’m in crisis, I need to fix this problem right now, who do I know can fix this problem, I don’t have time to do research.
They’re like, Oh, Chris.
And Katie can fix that problem.
Because I’ve been reading their stuff for the past six months about how these are the problems that they fix.
And it was so clear and concise that it stuck with me that I know that they’re the ones that I want to call.
I wasn’t ready by then.
But I took the six months to get educated and retain the information that now I know, they’ve covered that topic so they can do the thing.
And that’s such an interesting way to think about, you know, the marketing that we’re doing is, you know, we always try to go in with what I say we I’m sort of the general weeds us marketers, we go in with the hard sell revenue is the thing, you know, bring in the money bring in the customers.
And we tend to be like, No, I mean, we don’t need to focus on awareness.
It doesn’t do anything for us.
But what you’ve just described to me, is a scenario where if you skip that awareness piece and go straight to the hard sell, you’re never going to sell anything, unless you sell refrigerators, or something very tangible with a very clear use case.
In our industry, which is services, it’s different.
## Christopher Penn 22:46
The shorter your sales cycle is the more you can do a hard sell, right? If you’re selling chewing gum, you have a sales cycle of like, what two days, right? So let’s choose the pack of gum, they’ve got to buy another one.
Okay, that makes sense.
Like, Hey, are you ready for another pack of gum.
Now, if you’re selling attribution analysis, people don’t need that every day, they need a the most advanced companies need it once a month, maybe right.
And the laggards maybe do it once every decade.
And so we have to almost function like a cooking show, where you see us cooking, you were giving you recipes and stuff like that.
And then that one dinner party comes down like crap, it’s four o’clock, the dinner price is seven, I don’t have time to cook, I need someone to come here and cook right now.
And then we want them to remember us for that.
So in order to keep that memory, we have to, you know, something like CPM, for example, might actually be a valid metric just like are we showing up in front of people, one by pure accident.
Our our strategy of focusing on organic search in email marketing for our own company has been a huge benefit.
Because to email newsletters a week, you know, that’s 104 touch points every single year, we’re managing to stay in front of people a podcast every week of live stream every week, just trying to be helpful trying to keep people you know, people remember us.
And then you and I have had this discussion many times like, hey, it really sucks that you know, we’re our ad campaign didn’t work.
Well.
Of course, it didn’t work.
98% of our audience has no interest in buying right now.
But our inbound inquiries do when people say I need help, right? So we have to we have to sit down and look at this journey of our own.
Look at our numbers and measures ago.
Maybe we’re just measuring the wrong things.
## Katie Robbert 24:37
This has been such an illuminating conversation.
Because I think we have been measuring the wrong things.
We have been thinking about it the wrong way and not completely wrong.
Like a lot of the metrics that we’re looking at are important.
Like, yeah, if we have no money coming in, then there’s no company so obviously I need to be looking at that metric but When thinking about it in that more holistic, 360 way, thinking about what is the most important thing for us to be focusing on, is different.
And so this is, I mean, I feel like I just need to, you know, go heads down for the next three days and rewrite everything, all the plans.
But obviously, that’s not a reality.
The good news is we’re already doing a lot of the awareness stuff.
And so one of the conversations, Chris, that you and I will probably have this week is, you know, do you resurrect your YouTube show, but think about it, you know, in a way that it doesn’t take you 40 minutes a day to produce, but it’s still driving that awareness? And is that okay? Because the goal isn’t conversion, the goal is that long term awareness.
So I think that this has been, you know, incredibly, it’s incredibly helpful to me, and where we started with thinking about all of those metrics that we throw around, you know, the CPM, the CPC, the CPA, the rollout, the ROI, customer lifetime value, all of those metrics are important with the right context.
And if you’re just looking at them, through the funnel of I need to bring in more money, then you they may almost always fail you because marketing and human behavior is so much more complex than that.
## Christopher Penn 26:17
Exactly right.
And we know this from our own experience.
I was setting up a new server this weekend.
I don’t do that more than once every couple years.
But when I do it, I know exactly what vendor I’m going to.
And I you know, I buy the thing, our behave we know this is true from our own behaviors, we don’t know it’s good to have data to back it up.
But we know it’s true from from how we operate.
So if you’ve got questions about anything we’ve talked about, or want to contribute your own experiences for how you using these metrics, and how you’re thinking about your marketing, pop on over to our free slack group, go to TrustInsights.ai dot AI slash analytics for marketers, we can join over 1900 folks in helping all of us remember who we are and what we do.
And if you’d like to, if you’re watching the show, or listening to somewhere there’s a place you’d rather get it go to Trust insights.ai slash ti Podcast, where you can find it on most channels.
Thanks for tuning in, and we’ll talk to you soon.
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