Internet Marketing Blog

Posted by Josh on Tuesday, March 9th, 2010.

A long time ago, we wrote briefly about how higher Click-Through-Rate (CTR) values aren’t always desirable, and our clients often ask how to best interpret the significance of CTR.

CTR is literally defined as the percentage of people who viewed an ad that clicked on it.  For example, if an ad is shown 100 times and clicked on 5 times, the CTR would be 5%.  We generally want a high CTR, but not always. We don’t ever want to chase clicks that have no value to the advertiser.

An ad’s CTR represents how well the ad converts a viewer into a clicker.  Literally speaking, that’s all that it measures. A higher CTR represents a more “persuasive” ad than one that has a lower CTR. If we make assumptions about how the ad is being placed, it is somewhat related to the ad’s overall effectiveness at generating business, but each of these assumption is just that: a very big caveat. Here are some of the most significant assumptions and what they imply:

• The advertiser’s website is doing a good job of converting visitors into customers, subscribers, or whatever the end goal is. If the site isn’t performing, then the traffic may be of very high quality, but they won’t be turned into customers. This is far and away the biggest caveat and challenge to making any online advertising as effective as it could be.
• Ad text accurately reflects what is being offered. While extra hype and words like “Free” might help increase CTR, it is a waste of money to buy traffic that responds to a message that you are not supporting or that doesn’t turn into new business.
• Ad text matches the searcher’s intent. This is sort of a corollary to the previous bullet, but instead of focusing on accuracy, here I mean that someone searching on “joint replacement” could be looking for CV joints for their car or a new hip.
• There isn’t click fraud going on, where competitors are clicking on your ads to incur advertising charges. (Unfortunately this is exceptionally hard to detect and control, and for all but the biggest advertisers, the most cost effective strategy is to accept it as a cost of doing business. Fortunately it’s also a minor to negligible issue.)

Some more important facts about CTR:

• Search engines use CTR when ranking ads. Two ads might have the same bid, and the search engine will reward the higher CTR ad with the better position or a lower cost for the same position. This is an important way that higher CTR is advantageous: it provides more “bidding power”. In rare cases, higher CTR can lower costs.
• CTR is good for comparing ads on the same keyword to see what language those searchers best respond to.
• CTR depends very strongly on the ad position. If ads are higher on the page, they will have a higher CTR.
• CTR cannot be compared between ads on different keywords for numerous reasons. Different keywords usually have ads in different positions. Different keywords (and topics) are used by different groups of users that often behave very differently. They vary in what ad language they respond to and even how often they’ll click on ads versus natural search results. The difference between even slight keyword variations can be dramatic. Sometimes the difference between singular and plural versions can be as much as a CTR of 2.5% vs. 5%.
• The best ads almost always have the keywords in the headline of the ad. Because of size constraints, some keywords do not fit or must be put within the ad body instead of the headline, which puts them at a disadvantage compared to shorter keywords.
• CTR values can range widely: from well below 1% to over 20%, the latter being exceptionally rare. There are no standards or statistics for “typical” CTRs. They differ dramatically from keyword to keyword and from ad to ad, sometimes they even vary over time. Advertisers don’t typically disclose CTR data, and while the search engines do provide some estimates, the values are an average from current advertisers and thus usually underestimate potential performance and may represent different advertising goals.
• The best way to evaluate and use CTR is to compare ads on the same keyword and to your historical CTR. Ideally, all other things being equal, CTR should improve over time as you search for the “optimal” ad.  Improvements tend to get smaller and take longer as we approach whatever the optimal level is, and we don’t know what that optimal level is until we get close.
• Search ads are text only, people who are searching are focused on a a particular solution and typically not as receptive to promotional language. This means there is little brand lift from search engine ads, and ad language that works in search engines may not be what works for other forms of advertising.

I’ll close with the most important reason that CTR is usually not a primary metric of advertising effectiveness: the only true measure of advertising’s effectiveness is dollars spent versus dollars earned. This means that we need to compare average cost-per-click (CPC) to revenue. While CTR can help you get a lower CPC and affect traffic volume, it can also generate poor quality leads that drive up the average CPC.

© Web 1 Marketing, Inc.

Categories: AdWords, Clickriver, MSN adCenter, Overture, Search Engine Advertising, Yahoo Sponsored Search.
Tags: adCenter, AdWords, Bidding Strategy, Click Fraud, Conversions, Internet Advertising, Pay Per Click, PPC, SEM, Yahoo Sponsored Search