Digital Marketing Glossary: Need-to-Know Terms

AP Style Book 55th Edition (2020-2022) Index (p. 547)

Understanding key marketing terms and metrics is essential for optimizing your campaigns and achieving outstanding results. Whether you're a marketer, business owner, student, or just someone looking to deepen your marketing knowledge, this glossary is designed to provide clear definitions and practical examples of essential marketing terms.

Return on Ad Spend (ROAS)

Definition: ROAS measures the revenue generated for every dollar spent on advertising, serving as a crucial indicator of campaign effectiveness. Formula: ROAS = (Revenue from Ads / Cost of Ads) x 100 Example: Spending $1,000 on ads and generating $6,000 in revenue results in a ROAS of 600%.

Desired ROAS

Definition: The return you aim to achieve for every dollar spent on advertising, expressed as a percentage. How to Determine: Set a realistic ROAS goal based on past campaign performance, industry benchmarks, and financial objectives. Example: To earn $6 for every $1 spent, the desired ROAS is 600%.

Target ROAS (tROAS)

Definition: A bidding strategy in Google Ads, Bing, and other platforms where you set a specific ROAS goal, and the platform automatically adjusts your bids to achieve this target. Example: If you set a target ROAS of 500%, the ad platform will aim to ensure your campaigns achieve $5 in revenue for every $1 spent.

True ROAS (tROAS)

Definition: True ROAS measures the effectiveness of your advertising by comparing Customer Acquisition Cost (CAC) to Life Time Value (LTV). Formula: True ROAS = LTV / CAC Example: If the LTV of your customers is $1,200 and your CAC is $300, your True ROAS is 4 or 400%.

Conversion Rate

Definition: Conversion rate is the percentage of users who complete a desired action, such as making a purchase, after interacting with your ad. It’s vital for assessing how well your ad converts traffic into customers. Formula: Conversion Rate = (Number of Conversions / Total Clicks) x 100 Example: With 1,000 clicks and 50 conversions, the conversion rate is 5%.

Use this Conv. Rate Calculator to find the threshold required to achieve your “Desired ROAS”

Ad Spend Budget

Definition: This is the total amount allocated for an advertising campaign. It reflects your investment in promoting your products or services. How to Determine: Review your annual marketing budget, allocate a portion for digital advertising, and ensure it aligns with your campaign objectives.

Average Order Value (AOV)

Definition: AOV represents the average amount spent each time a customer places an order. It’s crucial for understanding the revenue each conversion generates. Formula: AOV = Total Revenue / Number of Orders Example: If monthly revenue is $30,000 with 500 orders, the AOV is $60.

Cost Per Click (CPC)

Definition: CPC indicates the amount paid for each click on your advertisement. This metric varies based on industry, keywords, and competition. How to Determine: Utilize tools like Google Keyword Planner and SimilarWeb to research CPC for targeted keywords.

Cost Per Acquisition (CPA)

Definition: CPA measures the cost associated with acquiring a new customer through advertising efforts, essential for understanding spend efficiency. Formula: CPA = Ad Spend Budget / Total Conversions Example: Spending $1,000 and gaining 50 new customers results in a CPA of $20.

Click-Through Rate (CTR)

Definition: CTR measures the percentage of people who click on your ad after seeing it, providing insights into ad relevance and effectiveness. Formula: CTR = (Number of Clicks / Number of Impressions) x 100 Example: An ad with 5,000 impressions and 100 clicks has a CTR of 2%.

Impressions

Definition: Impressions indicate the number of times your ad is displayed, regardless of whether it was clicked. Example: If your ad is shown 10,000 times, it has 10,000 impressions.

Total Sales (Revenue)

Definition: Total sales, or revenue, represents the total income generated from the sale of goods or services. Formula: Total Sales = Sum of all sales transactions within a given period. Example: If your business makes $50,000 in a month from all sales, your total sales are $50,000.

Total Orders (Purchases, Transactions, Conversions)

Definition: This metric represents the total number of orders or transactions completed within a specific period. Example: If you received 1,000 orders in a month, your total orders are 1,000.

Returning Customer Rate

Definition: The percentage of customers who make more than one purchase over a given period. Formula: Returning Customer Rate = (Number of Returning Customers / Total Customers) x 100 Example: If 200 out of 1,000 customers make a repeat purchase, the returning customer rate is 20%.

Paid Social Ad Spend

Definition: The amount of money spent on advertising through social media platforms like Facebook, Instagram, LinkedIn, and Twitter. Example: If you allocate $5,000 for Facebook ads in a month, your paid social ad spend is $5,000.

Paid Search Ad Spend

Definition: The amount of money spent on search engine advertising, including platforms like Google Ads and Bing Ads. Example: If you spend $3,000 on Google Ads, your paid search ad spend is $3,000.

New Customers Acquired

Definition: The number of new customers who make a purchase for the first time within a given period. Example: If 300 individuals made their first purchase this month, you acquired 300 new customers.

Average Order Frequency (AOF)

Definition: AOF is the average number of orders placed by customers over a specific period. Formula: AOF = Total Orders / Total Customers Example: If 1,000 orders were placed by 500 customers, the AOF is 2.

Customer Acquisition Cost (CAC)

Definition: CAC is the cost associated with acquiring a new customer, encompassing all marketing and sales expenses. Formula: CAC = Total Marketing and Sales Costs / Number of New Customers Acquired Example: If you spend $10,000 on marketing and sales and acquire 200 new customers, your CAC is $50.

Lifetime Value (LTV)

Definition: LTV represents the total revenue a business expects to earn from a customer throughout their entire relationship. Formula: LTV = Average Order Value x Average Order Frequency x Average Customer Lifespan Example: If the AOV is $60, AOF is 3, and the average customer lifespan is 5 years, the LTV is $900.

Marketing Efficiency Ratio (MER)

Definition: MER is the ratio of total sales to total marketing spend, indicating the overall efficiency of marketing efforts. Formula: MER = Total Sales / Total Marketing Spend Example: If your total sales are $100,000 and your marketing spend is $25,000, the MER is 4.