As paid search marketers, we’re always looking for better ways to give our clients the best analytics and most accurate forecasting for their KPI’s and business goals. There are many approaches to forecasting; however, we’ve found that regression analysis has always been extremely effective. In this article, we will take a closer look at simple linear regression, which allows us to find and study the relationships between two variables: one dependent and one independent. We’ll also take a look at how the historical relationship between both variables is able to help in predicting future values. I promise not to get too technical!
Let’s take one of our clients that advertises on TV and also leverages paid search online as an example. They are interested in a few things:
1) Is there any relationship between how much they spend on TV advertising and their paid search brand impressions?
2) If there is a relationship, how strong is it?
3) How much of an increase in paid search brand impressions can be expected if there is an increase in TV advertising by X?
In this example, TV advertising is the independent variable and paid search brand impressions is the dependent variable. In other words, TV advertising doesn’t depend on paid search brand impressions; however, paid search brand impressions depend on TV advertising. To answer the questions above, I’ve created a scatter plot in Excel using sample data:
Before reading too much into the chart, let’s first identify and explain what each element is:
Hopefully I haven’t lost you yet! Now that all of the definitions are laid out, we can now answer the questions proposed earlier.
1) Yes, there is definitely a relationship between how much is spent on TV advertising and paid search brand impressions. How do we know? Read answer number 2!
2) The relationship between both variables in this model is extremely strong. As we saw from R2, it’s at 0.93, which is basically saying that 93% of the variation in the data can be explained by the model.
3) We can leverage the equation at the top of the chart to figure out the incremental lift in paid search brand impressions as TV advertising changes
There are a ton of other great examples that you can apply regression analysis to with paid search – and it’s not just limited to using one variable! We will be following up on multiple linear regression analysis, where there are many independent variables affecting the dependent variable. For example:
For more information regarding regression analysis, I’d recommend checking out the Wikipedia page.
There are also some great introductory videos from a YouTuber.