PPC Glossary

This information will help you understand basic Pay Per Click metrics.

Click-through Rate (CTR)

How to Calculate It: Clicks divided by impressions.

What it Tells You: The percentage of how often a visitor clicks on your ad compared to how many times it's shown. CTR is also an important factor in Google's Quality Score rating.

Best Used For Evaluating: Quality of your ad text related to the keywords you're bidding on.

Cost per conversion (also called cost per acquisition or CPA)

How to Calculate It: Total spend divided by total conversions.

What It Tells You: Your average cost for each conversion; how much you are spending for each sale, lead, or site registration. It's important to understand what you're willing to pay for a sale, lead, or registration based on the value each of those conversions brings.

Best Used For Evaluating: Effectiveness of your bidding strategies.

*Google AdWords provides data for 2 types of conversions including 1-per-click and Many-Per-Click.

Conversion Rate

How to Calculate It: Total conversions divided by total clicks multiplied by 100.

What It Tells You: The frequency with which ad clicks are leading to a desired visitor action. Conversion rates vary by industries and target markets.

Best Used For Evaluating: Effectiveness of your selected landing pages.

Return on Investment (ROI)

How To Calculate It: Revenue minus cost divided by investment (cost) multiplied by 100 for percentage.

What It Tells You: How much benefit you are getting for the money you are spending; in theory, all you need to know.

Best Used For Evaluating: The interaction between all elements of your online campaign.

Quality Score

How to Calculate It: Quality score varies by ad network. There is no exact way for an advertiser to calculate a quality score, but Google describes search network quality score formula in the following way:

"It is calculated using a variety of factors and measures how relevant your keyword is to your ad group and to a user's search query."

What It Tells You: Quality Score is an indicator of how relevant Google feels that your keyword is to your ad and landing page. Overall, the higher the Quality Score the lower your required CPC bid will have to be to enter the ad auction.

Best used for evaluating: The relevancy of the keywords you're bidding on.