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Return on Investment (ROI) is a widely used performance metric for pay-per-click (PPC) and online advertising. Below , we outline correct use of this metric in advertising decisions and introduce Value at Risk (VaR) as a complementary performance risk measure.

Berkeley , CA (PRWEB) August 16 , 2005 - PPCQuants.com published today a report outlining the dos and donts of ROI and VaR in online marketing.

Return on Investment (ROI) is a widely used performance metric for pay-per-click (PPC) and online advertising. Below , we outline correct use of this metric in advertising decisions and introduce Value at Risk (VaR) as a complementary performance risk measure.

PRE-LAUNCH ANALYSES
Before launching an advertising campaign , its financial viability needs to be ascertained. The standard tools used are borrowed from capital budgeting , namely net present value (NPV) , internal rate of return (IRR) , and the quick and dirty payback period. Thus , ROI is not part of the arsenal of tools at this stage of analyses.

To analyze the risk associated with a campaign , you can perform NPV simulations and sensitivity analysis. On the other hand , VaR , which measures the probability of losing at least a pre-specified amount of your marking budget , can be an instructive risk analysis tool. VaR can be used as an approximation of the "maximum reasonable loss" over a chosen time horizon. Unlike sensitivity , which measures change in value due to a change in an input factor (click rates , number of clicks on ads , etc.) , VaR concentrates on the worst-case loss.

Marketers often ignore the downside risk of a campaign , says Alex Tajirian , ppcQuants CEO. VaR is specifically designed to quantify this risk , notes Tajirian.

DO AND DONT WITH ROI

ROI can be used to test the effectiveness of a new marketing campaign. ROIs main strength is providing real-time quantifiable feedback. To insure the measurement of total effectiveness of a campaign such results need to be adjusted for repeat customers and purchases of complementary items. Smart marketers implicitly or explicitly incorporate such an adjustment into their actual real-time data feedback. If actual ROI ends up being less than a pre-specified cut-off level , the marketer should not necessarily abandon the campaign , but needs to analyze and learn form the results.

Another role for ROI is performance monitoring and refinements to ensure that the campaign is on target.

ROI should not be used to measure the effectiveness of a branding campaign. Brands are earned; not bought.

APPROPRIATE ROLES FOR VarR
VaR can also be used to complement ROI in monitoring campaign risk and to make appropriate adjustments.

About ppcQuants

ppcQuants , a DomainMart.com company , is lead by professionals with extensive experience in financial portfolio management and valuation. They are leaders in providing analytical and quantitative tools to online advertisers and ad agencies.

For more information , please http://ppcQuants.com/ or contact:

Tom Saitori , Marketing Specialist
ppcQuants
Tel: +1 (415) 905-4234

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