AdWords Goal: To Increase Return-On-Investment (ROI)
If your AdWords goal is to increase ROI, our focus will be on conversions.
ROI is the ratio of your costs to your profits. It’s typically the most important measurement for advertisers because it’s based on your specific advertising goals and shows the financial impact your advertising efforts have on your business.
To improve your ROI, you first need to start measuring conversions. Once you’ve accomplished that, you can evaluate your ROI to see how well the money you spend on advertising is turning into profits for your business.
One way to define ROI is: (Revenue less/minus the Cost of goods sold) divided by the Cost of goods sold
Let’s say you have a product that costs R100 to produce, and sells for R200. You sell 6 of these products as a result of advertising them on AdWords, so your total cost is R600 and your total sales is R1200. Let’s say your AdWords costs are R200, for a total cost of R800. Your ROI is:
(R1200 – R800) / R800
= R400 / R800
In this example, you’re earning a 50% return on investment. For every R1 you spend, you get R1.50 back.
For physical products, the cost of goods sold is equal to the manufacturing cost of all the items you sold plus your advertising costs, and your revenue is how much you made from selling those products. The amount you spend for each sale is known as cost per conversion.
If your business generates leads, the cost of goods sold is just your advertising costs, and your revenue is the amount you make on a typical lead. For example, if you typically make 1 sale for every 10 leads, and your typical sale is R200, then each lead generates R200 in revenue on average. The amount it costs you to get a lead is known as cost per acquisition.
Why AdWords ROI matters
By calculating your ROI, you can find out how much money you’ve made by advertising with AdWords. You can also use ROI to help you decide how to spend your budget. For example, if you find that a certain campaign is generating a higher ROI than others, you can apply more of your budget to the successful campaign and less money to campaigns that aren’t performing well. You can also use ROI data to try improve the performance of the less successful campaigns.
Use the free AdWords conversion tracking tool to measure ROI
To identify your ROI, you first need to measure conversions, which are customer actions that you believe are valuable, such as purchases, signups, web page visits, or leads. In AdWords, you can use the free conversion tracking tool to help track how many clicks lead to conversions. Conversion tracking can also help you determine the profitability of a keyword or ad, and track conversion rates and costs-per-conversion.
Tip: Many AdWords advertisers use Google Analytics to track conversions. It’s a free web analytics tool that helps you learn how your customers interact with your website. If you don’t already have Google Analytics setup on your website, we can assist you with that as well as with the importing of conversions from your Google Analytics account.
Once you’ve started to measure conversions, you can begin to evaluate your ROI. The value of each conversion should be greater than the amount you spent to get the conversion. For example, if you spend R10 on clicks to get a sale, and receive R15 for that sale, you’ve made money (R5) and received a good return on your AdWords investment.
A Note: About Conversion Tracking
Conversion tracking is a free tool that shows you what happens after a customer clicks on your ads — whether they purchased a product, signed up for your newsletter, called your business, or downloaded your app. When a customer completes an action that you’ve defined as valuable, these customer actions are called conversions.