Advertisers nowadays consider calculating ROI (return on investment) is one of the essential parameters of PPC marketing. On the other hand, many of the advertisers still manage their campaigns without targeting ROI goals. But there has been a change in the mindset of the advertisers; lately, they have already started to optimize their search ads campaigns based on the conversion rate or the cost per conversion.
Let’s go through the different ways to measure the ROI of our campaigns:
Firstly, ROI is calculated as follows:
ROI = (Profits – Costs) / Costs
But when most advertisers talk about ROI, they are talking about ROAS, or “Return On Ad Spend”. ROAS is simply PPC revenue minus PPC cost, divided by PPC cost and it is usually shown as a percentage. For example, if your sales from PPC are Rs.1,00,000, and you have paid 50,000 for PPC clicks, your ROAS would be 100%:
Now, across Google Ads Search campaigns, the most commonly used ROI formula is the following:
ROI is simply conversions value divided by cost, and it is usually shown as a ratio. Suppose your sales conversions value is Rs.10,000, and you have paid Rs.5,000 for PPC click costs, your ROI would be 2.0
10,000 / 5,000 = 2
Another factor to consider is Conversion Value / Cost is calculating PPC ROI in Google Ads.
The sticking point when calculating ROI comes in is how the cost is defined. PPC click costs are not the only cost to a business marketing campaign. Take an e-commerce business, for example; there are costs to make the products and fulfill the orders. There are credit card processing costs and the cost of returned goods. You may also have customer service costs, such as the salaries of the people who answer phone and email inquiries.
Even in lead generation, where you are not selling physical products, there are still hidden costs. Consider the fixed expenses, such as those that keep your website running: servers, equipment and technicians and the salaries of the sales team.
The bottom line is that you genuinely need to get an idea of the cost of advertising and how much you need to invest based on all the factors to get a positive ROI.
Controlling your target ROI will help respect your business margins and you can build your PPC search campaigns in a smart, intelligent, efficient and scalable manner.