Click Through Rate And ROI Has NO Relationship

848 days ago by Willis Wee, in Uncategorized

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stop-counting-clicks A common belief is this:

More Click Through Rate (CTR) = More Return On Investment (ROI).

In other words, most people think that the more clicks they receive, the higher the ROI of their ad.

A Nielsen Company research, measured across over 200 campaigns, has busted the myth stated above.

CTR and ROI have no relationship!

ctr_roi

A correlation of -0.7 shows that these 2 metrics (CTR & ROI) are not at all related. This means that CTR doesn’t help advertisers predict the overall ad ROI; and perhaps shouldn’t be used as part of any marketing measurement matrix.

So what is CTR used for?

To answer that, we have to first understand how CTR is calculated:

CTR formula

The only thing it can measure is your ad persuasiveness. Consequently, ad attributes like image quality, ad attractiveness and choice of words affect the CTR.

But whether you can convert a visit to sales is a different ball game altogether. It will very much depend on your product offer, web design, web navigation and the ease of purchase!

Tags: CTR, ROI, Study

About Willis Wee

Co-founder of Penn Olson who is also an entrepreneur since 2005. He has had experience in crafting social media strategies for organizations such as Marriott Vacation Club, James Cook University, Reach Singapore and Unilever. Contact him at willis[at]penn-olson[dot]com

View all posts by Willis Wee →

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http://twitter.com/smallbiztrends Anita Campbell

Willis, what this suggests to me is that one of the best uses for display ads is “brand awareness” and not direct response (sales). A display ad should be more akin to a TV ad, than a direct mail piece.

Thanks for stopping over so frequently at BizSugar — much appreciated!

- Anita
http://twitter.com/williswee Willis Wee

pleasure
Bob Calder

Did somebody seriously think there WAS a relationship? ROFL
Bob Calder

Did somebody seriously think there WAS a relationship? ROFL
http://righteousmarketing.com robertbrady

I agree with Bob, this is one of those things that didn't need thousands of dollars of research to figure out. Getting someone to click an ad represents a much lower hurdle than getting a conversion that leads to positive ROI. No surprise they aren't correlated.
http://righteousmarketing.com robertbrady

I agree with Bob, this is one of those things that didn't need thousands of dollars of research to figure out. Getting someone to click an ad represents a much lower hurdle than getting a conversion that leads to positive ROI. No surprise they aren't correlated.
http://www.penn-olson.com/2009/11/24/8-social-media-marketing-tips-for-retailers/ 8 Social Media Marketing Tips For Retailers | Penn Olson

[...] Remember that click-through-rate doesn’t necessary mean higher ROI. [...]
http://www.penn-olson.com/2009/11/25/7-social-media-marketing-tips-for-retailers/ 7 Social Media Marketing Tips For Retailers | Penn Olson

[...] Remember that click-through-rate doesn’t necessary mean higher ROI. [...]
http://twitter.com/JHanlon Jack Hanlon

Makes sense and thanks for the writeup. However, I beg to differ about one piece: “The only thing it can measure is your ad persuasiveness. Consequently, ad attributes like image quality, ad attractiveness and choice of words affect the CTR.”

Ad placement has a HUGE effect on CTR (in terms of what websites the ad is coming through on and where on the website it is placed (e.g. above the fold or below, etc…), so I would say it measures quite a bit more than just ad persuasiveness!