Return On Investment (ROI)
When you use AdWords to increase conversions such as sales, leads, and downloads, it’s a good idea to measure your return on investment (ROI). Knowing your ROI, you’ll be sure that the money you’re spending on AdWords advertising is going to a good cause: healthy profits for your business!
What’s ROI?
ROI is the ratio of your profits to your costs, and the exact method you use to calculate it depends upon the goals of your campaign. For example, an investment of $1000, which leads to revenue of $1200, gives you a profit of $200. You can then calculate your ROI as (1200- 1000)/1000), or 20%. It’s typically the most important measurement for an advertiser because it’s based on your specific advertising goals and shows the real effect your advertising efforts have on your business.
Why ROI matters
By calculating your ROI, you’ll learn how much money you’ve made by advertising with AdWords. You can 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 to the ones that aren’t performing as well. You can also use the information to try improve the performance of the less successful campaigns.
ROI: focus on profits by measuring your “return on investment”
Using conversions 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, sign-ups, web page visits, or leads. Conversion Tracking is a free tool that helps you track how many clicks lead to conversions. You can use Conversion Tracking to determine the profitability of a keyword or ad, and track conversion rates and cost-per- conversions.
Tip
Many AdWords advertisers use Google Analytics for conversion tracking. It’s a free web analytics tool that helps you learn how your customers interact with your website.
Learn more about the differences between Analytics and Conversion Tracking.
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 $10 on clicks to get a sale, and receive $15 for that sale, you’ve made money ($5) and received a good return on your AdWords investment.
Calculating your ROI for sales
Determining your AdWords ROI can be a very straightforward process if your business goal is webbased sales. You’ll already have the advertising costs for a specific time period for your AdWords account in the statistics from your Campaigns tab. The net profit for your business can then be calculated based on your company’s revenue from sales made via your AdWords advertising, minus the cost of your advertising. Divide your net profit by the advertising costs to get your AdWords ROI for that time period.
Example
| $1300 – | $1000 = | $300 | ROI = 300 / 1000 = 30% |
| You sold $1300 worth of | You spend $1000 on | Net profit | Your ratio of profit to cost |
| products (measured by | AdWords (measured by | of $300 | is 30% – this is your ROI |
| conversions) | your AdWords costs) |
Calculating your ROI for page views, leads, and more
Sometimes your ROI may require a different formula. For example, if you’re interested in calculating the ROI for a page view or lead, you’ll have to estimate the values of each of these actions.
Example
A Yellow Pages ad for your business may cost US$1000 per year and result in 100 leads. Ten of those leads become customers, and each customer provides an average revenue of US$120. The value of each lead is US$12 (US$1200 revenue/100 leads), and your ROI for the Yellow Pages ad is 20% (US$1200 revenue minus US$1000 spent)/US$1000 advertising cost) x 100. Here’s the formula used in this example:
(Revenue – Costs)/Costs) x 100 = ROI %
Tip
A simple alternative to estimating values for your leads and page views is to use a cost-peracquisition (CPA) measurement. Acquisitions are the same thing as conversions: they’re actions your customers take that you think are valuable, such as completing a purchase or signing up to receive more information.
Using this method allows you to focus primarily on how your advertising costs compare to the number of acquisitions those costs deliver. Using the Yellow Pages example again, your ad may cost US$1000, resulting in 10 sales. So your CPA for that ad is US$100. Here’s the formula for CPA:
(Costs/Sales) = CPA
Your CPA shouldn’t exceed the profit you made from each acquisition. For your Yellow Pages ad, the CPA is 20% less than the revenue the acquisitions provide.
Measuring Traffic
If your main advertising goal is to increase traffic to your site, try focusing on increasing your clicks and clickthrough rate (CTR). Start by creating great ad text and strong keywords to make ads that are highly relevant and very compelling to your customers, then closely monitor your clicks, CTR, keywords, and search terms.
Why worry about the relationship between ad text and keywords? Think of a rowboat and an oar, and the way that they work together to reach a destination. Good keywords can steer a tightly connected ad towards the right customers, boosting your clicks and CTR.
Not sure where to start? Get strategies for creating campaigns that increase traffic.
What to measure
Here are some important things you can measure to help you track and improve a campaign that’s focused on traffic:
Clicks and clickthrough rate (CTR): These two metrics help you understand how many people found your ad compelling enough to actually click on it and visit your website. You can measure clicks and CTR at all levels of your account. For example, you can see how many clicks an entire campaign, ad group, or ad received, or you can see how many clicks individual keywords have generated after triggering your ads. On the Search Network, a good CTR is generally considered to be 1% or higher.
Keywords: Keep a close eye on keyword performance with these strategies:
- Update your keyword lists regularly. Pause or remove the words that aren’t working well for you (for example, if they have CTRs below 1%, or low Quality Scores) and add new ones. Add columns and segments to your statistics table on your Keywords tab for an overview of your keywords’ clicks, CTR, Quality Scores, and more.
- Use the four keyword matching options to help control who sees your ads. Add the Match type column to the statistics table on your Keywords tab to see how the different keyword matching options perform for you. With some options, you’ll enjoy more ad impressions, clicks, and conversions. With others, you’ll get fewer impressions and more narrow targeting.
- For a comprehensive view of keyword quality, run a keyword diagnosis. It gives you information about your keywords’ Quality Scores and whether they’re triggering your ads. A Quality Score of 5 or higher is generally considered good.
Search terms: When you use broad-match keywords (the default setting), your ads can appear when someone searches for a variation of your keyword, like a similar phrase or related word. To see a list of searches that have triggered your ad, go to the Keywords tab of your account, click Keyword details, then select All. You can use this report to identify relevant terms that are driving traffic to your website, and then add them as new keywords. Or, if any of the keywords are irrelevant to your business, you can add them as negative keywords so they won’t trigger your ads.
Tip
If a keyword has a green “Added” box next to it, then it means you already have that exact search term in your keyword list.
Example
If your campaign has the keyword digital cameras on broad match, the report may show that your ads appeared for the search query “digital cameras London.” If your business sells to people in London, you could add this phrase as a keyword in your account. If you don’t serve London, you could add London as a negative keyword to make sure your ad stops appearing on that search. By adding irrelevant search terms as negative keywords, you can help improve your clickthrough rate.
Measuring Brand Awareness
Branding campaigns have a unique goal: to raise awareness and visibility of your product, service, or cause. To help reach these objectives, you can use your AdWords campaigns to increase traffic to your website or encourage customers to interact with your brand.
Once you’ve established your branding campaign’s goals, you can choose the best places to show your ads, and then measure success by monitoring impressions, conversions, and other statistics. Generally, you’ll want to try to place your ads in front of as many people as possible within your target audience.
Most advertisers with branding goals are primarily concerned with creating brand awareness. They may want to track conversions like page views instead of purchases. For example, an advertiser that’s introducing a new energy drink wants to create awareness and interest among as many sports enthusiasts as possible, and isn’t necessarily concerned with selling actual bottles of the drink online.
Not sure where to start? Get strategies for creating campaigns that increase brand awareness.
Networks for your branding campaign
Google has two networks where your ads can run: the Search Network and the Display Network. While the Search Network primarily runs text ads, the Display Network runs text ads, colorful image ads, and multimedia ads (like video or animation) that can be particularly good for showing branding messages. Display ads can create an emotional connection by using graphical, audio, and video elements to tell a story that’s unique to your company.
On the Display Network, you can target your ads very effectively. By choosing exactly which websites and pages will show your ad and creating an ad with lots of visual impact, it’s easy to catch the eye of people who’re interested in what you sell.
Example
Say you work for a high-end Italian car manufacturer. You could create a video ad to showcase the new features of your latest model, the SuDuperRossa, and choose to run that ad only on websites for owners of high-performance cars, since they’re part of your target demographic.
What to measure for brand awareness
Here are some important metrics that show whether your branding campaign is successful:
Impressions: Impressions are important to track in any campaign, no matter what your goals are. But they can be especially important in branding campaigns, because they represent how many customers actually laid eyes on your ad. You might not care whether they ended up buying anything from your site, but you do want them to remember that catchy new slogan you paid big bucks to develop and share with the world.
One way to really prioritize impressions is to create a cost-per-thousand impressions campaign (rather than a cost-per-click campaign). That way you’ll pay based on the number of impressions your ads have received, rather than by the number of clicks they’ve gotten.
Customer engagement: If you’re focused on branding, you can use clickthrough rate (CTR) to measure customer engagement for Search Network ads. On the Display Network, though, user behavior is different, and CTR isn’t as helpful. That’s because customers on sites are browsing through information, not searching with keywords. Also, on a busy Display Network page, an ad has to compete more to get the attention of a reader than it would on a search page. It’s more important to try to achieve a good CTR on the Search Network (1% or higher) than on the Display Network, where clickthrough rates are frequently lower. You may want to consider other measurements like conversions for Display Network ads.
Conversions can help you see whether your ads are driving branding-related visitor behavior you think is valuable, such as sign-ups or page views. After all, aren’t you curious how many people join your mailing list after watching that expensive video ad your company just created?
Reach and frequency: Reach is the number of visitors exposed to an ad. Increased reach means that an ad is exposed to more potential customers, which may lead to increased awareness. Frequency is the average number of times a visitor was exposed to an ad over a period of time.
According to the DoubleClick Ad Planner, the AdWords Display Network reaches 83% of unique Internet users around the world… That’s a valuable branding partner.
Measuring Sales & Conversion
An AdWords conversion occurs when someone clicks on your ad and performs a behavior on your website that you recognize as valuable, such as calling your business from a mobile phone or making a purchase on your website. When you use AdWords to increase conversions or sales, keep track of your conversions with a free tool called Conversion Tracking. That way, you can keep an eye on important statistics like cost-per-conversion and conversion rate that tell you how successful your ad campaign is.
A conversion is what you choose it to be
A conversion may be a purchase, but it can also be a call from a mobile phone, a visitor submitting her contact information for an insurance quote, or a prospective buyer downloading a white paper about your company’s software capabilities. Or maybe it’s a request for more information, or views of a page that features your new product. It’s up to you!
Tip
To see conversion data in your account, you need to set up Conversion Tracking first. Don’t worry; it’s free! Here’s how to get started.
What conversion information you can measure
Once you’ve set up Conversion Tracking, you can keep an eye on some important statistics to help you measure whether your ad campaign is successful:
Number of conversions and cost-per-conversion: You can assign monetary values to your conversions when setting up tracking to get detailed revenue information in your reports. Reviewing your total number of conversions and the value of these conversions can help you decide if you should increase your budget or make changes to your ad groups to attract more targeted visitors.
Conversion rate: This helps you track how many clicks lead to valuable actions like a sale or signup. The conversion rate listed in your account is the number of conversions divided by the number of ad clicks. Conversions are only counted on Google and their Network partners. The conversion rate is adjusted to reflect only the ad clicks on which AqdWords can track conversions.
Keyword conversion data: Conversion Tracking shows you what happens after a customer clicks on your ad — whether he purchased your product or signed up for your newsletter. By knowing this, you’ll also know which keywords are best at encouraging customers to take those actions. Then you can improve your keyword list based on your findings, and make smarter investments in your best keywords.
Tip
Learn how to add columns to customize the data in your statistics table. After you set up Conversion Tracking, you can add the Conversions columns to any of the statistics tables on your AdWords account tabs to see data.
Destination URLs: You can see which destination URLs are leading to the most conversions on the Dimensions tab of your account. Just click the View button, then select “Destination URL” from the drop-down, and make sure you’ve added the conversion columns to your data table.
Just as keywords and ad texts should focus on a specific product or service, the destination URL (and landing page) you choose for each ad should be product or service-specific too. Make sure that the destination URL you use for each ad directs customers to the most relevant page within your website. Ideally, that webpage will be dedicated to the specific product or service that’s highlighted in your ad.
Example
If a real estate agent’s ad highlights apartments for sale in London, the ideal landing page may feature all available apartments for sale in London rather than the real estate agent’s homepage. Customers are much more likely to buy if they don’t have to search your website to find what they’re looking for.
Tip
Many AdWords customers choose to use Google Analytics for conversion tracking. It’s a free web analytics tool that helps you learn about how your customers interact with your website. Find out what the differences are between Google Analytics and AdWords Conversion Tracking.