How to Measure ROI for Pay Per Click Advertising

Understanding how to measure the Return on Investment on anything, can mean the difference between ignorantly sinking into a bottomless abyss of failure and scaling the rungs of success. This applies to every investment including Pay per Click.

Calculating the ROI is one of the key tenets of PPC but the modern crop of online marketers and advertisers don’t seem to pay enough attention to it leave alone understanding it. A lot of the modern day marketers simply run campaigns and only use the conversion rate as the metric for determining the success of a campaign.

Although the conversion rate is one of the metrics that can be used to determine the success of a campaign, it is superficial in providing an insight on how the overall campaign performed. It basically focusses on the keywords that managed to rake in a sale and overlooks those which were not as successful in leading to a conversion even though they played an equally important role in lead generation.

So, what are some of the other more conclusive ways of calculating the ROI in PPC? Before looking at the more conclusive ways of calculating the ROI, it is important to understand the metrics which are tracked and are used in determining the overall ROI. Here are some of the important metrics which are tracked in PPC;

Tracked PPC Metrics

Clicks and impressions

Impressions are a measure of the number of times an ad is displayed while clicks are the number of times that someone clicks on the displayed ad.

Cost per click

Cost per click or CPC is the amount of money that you pay whenever someone clicks on any of your displayed ads. The average cost depends on the competitiveness of the keywords that are on offer.

Click Through Rate

The click through rate is the number of times that an ad is clicked on with respect to the number of ads that the ad was displayed. It is essentially the number of clicks divided by the number of impressions on an ad.

Quality score

Quality score is the ranking provided by Google based on how good one’s campaigns are. It depends on things like keyword quality, landing pages, ad copies and relevancy of the keywords used in campaigns.

Now that we have seen some of the metrics that are tracked, let’s go back to the ways through which PPC ROI is tracked. To help you keep track of the progress of your PPC campaign and overall state of finances, we have put together 3 ways of calculating ROI which have been put to test. Here is how to measure ROI for Pay per Click Campaigns;

How to Measure ROI for Pay per Click Campaigns

Using Return on Ad Spend

Return on Ad Spend is the simplest and most conclusive means of determining the return on your PPC campaign. A lot of marketers prefer to use ROAS because of how easy it is to calculate and hence yields in simplicity when it comes to performing optimization.

Here is the formula for ROAS;

(Profit-Cost)/total cost spent

If for instance the total sales that culminated from the PPC campaign you created are $1000 and you used a total of $200 for the PPC clicks, then the ROAS would be:

($1000 Profit-$200 Cost)/$200 total cost spent which yields 4.0 or 400%. This therefore means that your ROAS would be 400%. A lot of the seasoned marketers use this method to calculate the ROI on PPC campaigns and use the information to optimize their bids and make the most of their PPC campaigns

2. ROI

ROI is pretty much like ROAS only that the calculations differ slightly. ROI takes into consideration a number of factors and not purely the cost of clicks like the case of ROAS. This means that all the costs incurred in producing the product are taken into consideration when calculating the ROI.

This is how ROI is calculated:

ROI: (Total Revenue-Total Revenue)/Total Cost *100.

3. Profit per Impression and profit per click

This is a more holistic approach of calculating the ROI. It takes into consideration important data such as clicks, total cost and total sales value when calculating the ROI. To calculate the profit, you need to subtract the total cost from the total sales value while profit per impression calculation requires dividing the profit by the number of impressions.

Talk to the experts

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