There are many metrics for evaluating the effectiveness of an advertising campaign – these are CTR, CPA, CPO, RRR and others. From such a number of abbreviations, a novice marketer’s eyes widen.
In today’s article, we’re going to talk about RRR, how to improve it, and how it differs from other metrics.
What is DRR
DRR stands for Advertising Spending Share. This is a very important indicator that allows you to determine the percentage ratio of advertising expenses to the income that it brought. It is used to evaluate the effectiveness of advertising, and it is most often used by Russian-speaking marketers. There are English equivalents of Cost Revenue Ratio (CRR) and Efficiency Ratio, but they are rarely used.
The effectiveness of the RRR indicator is considered positive if its value is below 100%. Let’s consider how it works on an example: let’s say we invested 500,000 rubles in contextual advertising, as a result of which we sold goods for 1,000,000 rubles. With such indicators, the DRR will be equal to 50%, which means that the advertising campaign was a success.
If we invested 500,000 rubles, and received from this, for example, 450,000 rubles, then the indicator would be more than 100%. With a 100% value, it would turn out that we received as much money as we invested.
Calculating the RRR, as you might have guessed from the example above, is extremely simple. It is necessary to divide marketing expenses for the reporting period by the income that they brought during this period.
The formula itself looks like this:
If we plug in the values from the example above, we get: (500000 / 1000000) * 100% = 50% . That’s where we got this number from.
It is worth noting that the calculation of the DRR is a laborious process, since it is necessary to take into account orders from the site, calls, visits to offline stores, and so on.
For the most successful and fastest calculation of the RRR, various tools are used, in particular, a package consisting of the “Statistics” and “Optimizer” tools developed by the K50 company.
Statistics work as follows: in one interface, all data collected from Calltouch, Google Analytics and Yandex.Direct is presented. The tool provides statistics in full or on a specific parameter.
The “Optimizer”, in turn, interacts with the “Statistics” tool, loading campaign data from it and analyzing its effectiveness.
To determine the effectiveness manually, before you had to analyze all the key phrases and independently distribute bids for more effective ones. With the same tool, you can do everything automatically: it analyzes the entire volume and determines those phrases that have brought a certain income.
When to use DRR
Most often, this indicator is used in online sales, for example, to calculate the effectiveness of an advertising campaign for an online store.
But why calculate DRR if advertising works on the principle of “the more you spend, the more you get.” Unfortunately, this doesn’t always work. And in such cases, various metrics just help us. Provided that the RRR is monitored in dynamics, it is possible to recognize when the turnover is growing and when it is falling.
For example, a customer spent 500,000 rubles on advertising and received 1,000,000 rubles from it. He thinks that if you invest twice as much, then the profit will double. But the following happens: 1,000,000 rubles are invested, and the output is not 2,000,000, but 1,500,000. This means that the advertising budget is spent inefficiently and needs to be optimized. Perhaps you should change the creative, the audience, or redistribute the budget.
How DRR differs from other metrics
As I said at the beginning, you can evaluate the effectiveness of an advertising campaign using other indicators: CTR, CPA, CPO. Let’s compare their calculation formulas and see how these metrics differ.
How it is calculated: CTR = number of clicks / number of impressions * 100%
How it works: This is the primary metric that shows the ratio of ad impressions to ad clicks. CTR helps you understand where your ads are attracting more users.
For example, on one resource, an ad was shown 10,000 times, but received only 100 clicks. At the same time, on another site with the same number of impressions, the ad received twice as many clicks. Thanks to this, the marketer can determine which ads were successful and which were not.
Tools: To determine the CTR, separate tools are not needed, it is automatically calculated by Yandex.Direct or Google AdWords .
How it is calculated: CPA = amount of advertising costs / number of targeted actions
How it works: The advertiser decides for himself what is meant by the target action, for example, calls or watching a video, and what is the allowable CPA indicator .
For example, 50,000 thousand rubles were spent on contextual advertising, and 200 people called the advertiser, that is, the cost of each call was 250 rubles. If this cost is less than or equal to the allowable CPA, then the advertising campaign was successful.
Tools: You can use almost any PPC optimization platform to calculate CPA, such as K50 or Alytics.
How it’s calculated: CPO = total ad spend / number of confirmed orders
How it works: Similar to CPA, but in this case, the target action is a purchase. The CPO indicator allows you to understand how much each order costs.
For example, if 50,000 rubles were spent on advertising, and 500 goods were sold in the online store, then the cost of the order was 100 rubles. Advertising will be effective if such a cost is lower than the product sold.
Tools: Since this metric is almost the same as the previous one, it uses the same tools.
The PRR indicator allows you to evaluate the effectiveness of advertising, to understand if there are problems in it and what needs to be changed. It is best to use it for online stores, and to improve it is necessary to analyze not only advertising, but also other factors: the place where ads are shown, the functionality of the site, and so on.
In summary, it is worth saying that each of the metrics does not replace each other, but is used for specific purposes. So, for example, DRR is well suited for an online store. CPA and CPO can be used for news portals where the goal is to get more subscriptions. CTR is better to use as an additional indicator, since it does not reflect real profit.
It is important to understand that expensive advertising is not always effective. The choice of advertising and the way it is distributed directly depends on the target audience, so it is important to approach an advertising campaign wisely and analyze all actions.