CTR Doesn’t Really Matter to Me
Before I begin let me say that Jonathan Mendez is one of the few people I follow on Twitter. I’ve followed his tweets basically since I set up my Twitter account and read his blog, Optimize and Prophesize, on a regular basis. But in his latest post, ‘CTR is the Web‘ he makes a couple of unjustified assumptions that lead him to believe that the clickthrough rate (CTR, or the number of clicks on an ad divided by the number of times the ad was shown) is an important metric for online advertising.
I’ll briefly summarize his post, if I can, primarily to make certain that I am doing justice to his argument: Darren Herman posted some quotes from digital marketers about the importance of CTR in online marketing campaigns. Mr. Mendez was surprised to see that most of them downplayed the value of CTR as a performance metric. Clickthrough rate is the primary factor determining your Quality Score on Google. It is an “incredibly important metric in Email” marketing, he said. “The click is also an important proxy for the effectiveness of creative images and messaging.” So why should CTR not be important in display advertising?
Well, Jonathan, the reason is simple: In online advertising, we don’t need proxies, because we have conversion data. For each ad, we can calculate how many sales we make and how much money we earn per sale. Our goal as economic agents is to simply maximize our profit per day.
Perhaps I can prove this by example. It doesn’t matter whether the ad in question here is a banner-type, image-based ‘display’ ad, a pay-per-click text ad that appears in Google’s search results, or a ‘powered by Google’ (aka ‘Content Network’) text ad that appears elsewhere on the web. (Pick whichever is most comfortable for you to think about.)
Simple example: I am a dealer of luxury and exotic cars and I run some ads for my car dealership. One of my ads says: “All-electric Tesla Roadster now in stock. Click for pics and specs!”
Let’s say that my ad gets shown 1000 times to users, only 10 of whom might realistically buy a $100,000 electric sports car. But let’s say that 100 viewers of the ad might click just to see the pictures and read the specs. So, I get 110 clicks (an 11% CTR, not too shabby). But, of those 110 visitors, only 10 at most will leave their name and phone number for me to give them a call.
So, I change my text to ‘pre-qualify’ shoppers. Now it reads: “All-electric Tesla Roadster now in stock. Serious buyers only.”
This time my ad gets shown 1000 times, but most likely, far fewer than 11% of viewers will click on it. Most of those 100 people who were going to click on the ad in order to see sexy photos of the car now won’t click on the ad. So, maybe I’ll only get 10 or 20 clicks (a 2% CTR) and, if I’m very lucky, only the 10 serious shoppers will click on the ad (a 1% CTR). However, in the end, just as many will leave their contact information as for the previous ad. (All I’ve done is filter out most of the non-serious shoppers.)
From the marketer’s perspective, which of these cases is preferable? If I pay per click, the second case is the best. I won’t have to pay for 100 clicks from picture-peepers. I’m willing to accept a lower CTR (and a lower Quality Score) if it means I make more money in the end by not paying for low-value clicks.
Mr. Mendez says: “CTR though is most important in relation to other metrics. Site placements, keywords, conversion rates, average order values and on and on.” But in fact the exact opposite is true. Your CTR is one of the least important metrics. Our goal is not to maximize our CTR, our Quality Score, or any other metric besides profit.
(Email-based advertising is a different animal altogether. In email-based ads, I don’t pay per click, so of course I’d like as many people to visit my page as possible with each mass mailing I make. But when I’m paying by volume of traffic, I want the highest-quality traffic possible.)
UPDATE, 26 Aug 2010: For more on this perspective, please see my The Search Agents’ blog post, ‘The Values of a Click.’