Advertising Key Metrics // TheStatsDude's blog

I recently moved to advertising organization and I have always been wanting to summarize the key metrics in this space.

Advertising is a three-sided marketplace that involves advertisers, publishers and shoppers. In this marketplace, the advertisers compete for opportunity to influence customers (through bidding for impressions), the shoppers want to find the products they want earlier, while the publishers want to maximize advertising revenue without hurting shopper’s or advertiser’s experience.

Ads publisher revenue

Consider a pay-per-click business model when the advertiser pays a publisher when the ad is clicked. The ads publisher revenue is

$P u b l i s h e r R e v e n u e = I m p r e s s i o n s \times C T R \times C P C$ where impressions correspond to the number of times the ads are shown, CTR corresponds to click-through-rate (number of clicks ads receive / number of impressions), and CPC stands for cost-per-click (amount of money the publisher charges for each click). Note that we can further decompose impressions into

$I m p r e s s i o n s = P a g e R e q u e s t s \times A d s D e n s i t y$ Combining them together, we have

$P u b l i s h e r R e v e n u e = P a g e R e q u e s t s \times A d s D e n s i t y \times C T R \times C P C$ This suggests that publisher can improve its revenue by attracting more traffic (increasing number of page requests), displaying more ads (increasing Ads density), displaying more attractive and relevant ads (improving CTR) and charging more from advertisers (increasing CPC). It is worth noting that for e-commerce platforms, advertising revenue is just part of the business and what matters more is if the platform is making money through advertising and retail as a whole.

Shopper Experience

The shopper experience can be measured on various aspects, and needs to cover both short-term and long-term

Short-term
- Search engagement: clicks, search abandonment, search reformulation, etc.
- Shopper short-term spending
Long-term
- Shopper long-term spending

Advertiser: Return on Ads Spending (RoAS)

Advertiser (e.g., Adidas) invests in ads to boost their sales, therefore, the key metric for advertiser is return on ads spending (RoAS). One commonly used definition is

$R o A S = A d v e r t i s e r S a l e s / A d v e r t i s e r S p e n d i n g$ where

$A d v e r t i s e r S a l e s = C o n v e r s i o n s \times A v g P r i c e = I m p r e s s i o n s \times C T R \times C V R \times A v g P r i c e$ and advertiser spending can be viewed as equal to publisher revenue (although it is not always the case given the potential third-party intermediaries, involvement of SSPs or DSPs, and revenue split with external publishers.)

It is worth noting that RoAS is a nuanced topic as sometimes advertisers would want to take a more holistic view on their ads spending and use all revenues as their sales number.