Return of Investments for online marketing

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The following metrics and indicators determine the expenditures and return of investments of marketing investments in paid inclusion (including your company’s web page in search results) for your company:

  • S (Total Search results in period): Total number of times the keywords are used in searches in the planning period.

  • CPM (Cost per 1000 impressions): Cost of the search engine per every 1000 impressions, every time your website appears in a search result

  • CPC (Cost per click): Cost per every click

  • CTR (Click Through Rate): rate between the number of clicks and number of impressions

  • CVR (Conversion Rate): rate between the number of visitors and the number of users

With this, the number of visitors (V) and the number of users (U) can be calculated as:

\(U = V * CVR = S * CTR * CVR\)

The total costs (\(C_t\)) of the search engine investmets are:

\(C_t = CPC*V + CPM/1000*S\)

The ARPU (Average revenue per user in planning period) is the average revenue per user, or the total revenue in the planning period (R), divided by the number of users:

\(ARPU = R/U\)

The Return of Investments for online marketing is calculated as:

\(ROI = \frac{R - C_t}{C_t}\)

After some research, you have found that the different metrics can be modeled as normal distributions with the following parameters:

Metric

Mean

Standard Deviation

Search results

600000

100000

CTR

0.05

0.01

CVR

0.5

0.1

These are the search engine fees for your keywords:

  • CPM = 0,3€

  • CPC = 0,75€

You estimate your ARPU in 5€

a. Calculate the total costs, the total Return of Investments and the average cost per acquisition using Montecarlo Simulation

b. Calculate the 95% confidence interval of the ROI