Calculating The Return On Investment From Your PPC

PPC Blog 13th Aug 2014

Koozai > Koozai TV > Calculating The Return On Investment From Your PPC

Hi, I’m Sam, and today I want to look at how you calculate your return on
investment from your PPC campaigns.

Before we begin, I need you to ask yourself one question. Do you know how
much money you’re actually making off the back of your PPC campaigns?
Because I speak to so many people, and a lot of the time they kind of have
an idea that they’re making a profit out of their AdWords campaign, but
they don’t actually know how much they’re making. A lot of the time, even
though you think you’re making money, you might not be making as much as
what you actually are. It’s important that you start to look at this, and
if you’re running PPC campaigns, you need to know exactly how much money
you’re making off the back of doing so.

To start with, I’m going to look at the return on ad spend. This is one of
the most common ways that people work out how much money they’re kind of
making from AdWords or Bing or whatever PPC platform that you’re running.
It’s the easiest way of doing it, but it’s definitely not the most
accurate. Even if this is the only way that you can do it, you’re better
off doing one way rather than not doing anything at all.

Looking at the return on ad spend, which is abbreviated to ROAS, which is
the way you’ll most commonly see it, in order to work this out you take
your PPC revenue — so how much have you made from PPC over a set period of
time. You take away your ad spend — how much have you spent on clicks on
your PPC campaign to drive that traffic into the website and to generate
the revenue off the back of it. Then, you take that figure and you divide
it by your PPC spend. Now this will tell you that you’re either making
money or you’re not making money.

Obviously, if this starts to become a minus figure, your revenue isn’t as
much as what your costs are, and that’s an absolute no-no. You shouldn’t be
doing PPC, or you should be doing it, but making it more cost effective and
making it better.

This is one way of doing it. The most accurate way of working out your ROI
is to actually look at the actual ROI. Now this is a lot more difficult to
work out because you need to know a lot more data in order to calculate the
figure, but if you can do it, this is definitely the most accurate.

To do this, you take the PPC revenue the same way as you’ve done before,
but this time you minus the total costs. Now these costs can be things such
as your employee costs, the product costs of how much you’ve paid for that
product, or if it’s a service that you’re selling, how much does it cost
you to sell that service, how much are your staff costs, what’s the
fulfilment of it, all these different costs that come in off the back of
actually selling something. All these costs need to come into this total
cost figure here. Once you’ve worked that out, you then divide it by the
total cost again. This will tell you your return on investment from your
PPC spend.

Now if you just look at the PPC spend in this example here, it’s not giving
you the true reflection of exactly how much money you’re making. But as I
said earlier, if you can’t work this figure out down here, then at least go
with this route here. Now, to get at these both as a percentage, you simply
times them by 100, and then that gives you your percentage figure. The
higher the percentage, the better ROI that you’ve got.

Now, there are some ways that you can work to improve the return on
investment from your PPC campaigns. I’m not going to go into too much
detail on these because we’ve done a load of videos and blog posts on this
subject, so you can go and have a look at those.

Some of the things that you want to touch on are looking at your negative
keywords. There’s going to be a lot of traffic coming into your website
from your PPC campaigns that might not necessarily be relevant. So looking
through your search query report, uncovering the keywords that are
irrelevant, and adding them into your negative keyword list helps you to
reduce the amount you’re spending on wasted traffic that’s not going to
convert for you.

Moving on from that, you can start to look at the underperforming keywords,
ad groups, and ad text. Any of those three things that are driving lots of
traffic to the site but they’re not actually converting, or you’re
converting at a high cost per acquisition or a high spend, you can start to
whittle those out and get rid of those. Likewise, if they’re not actually
converting at all, always keep refining and removing the keywords that
don’t actually work for you so that you’re constantly looking to reduce
your spend so that the revenue that you get off the back of it is coming in
with a higher ROI.

Other things that you can look at doing is improving your ad text, always
split testing your ad copy, looking to see which ads perform better than
others, pausing the poorest performer, then making a new version of the
better performer and seeing if you can constantly try to get that to
improve all the time. Also, have a look at what your competitors are doing
from their ad text. See if you can actually take a few bits of ideas from
them and see if they work within your ad copy, because chances are if
something’s working for others, it will probably work for you as well, so
always worth giving that a test.

Some other things that you can look at doing is ad scheduling. If you’ve
got your ads set up to run 24/7, using the time of day and hour of day
reports in AdWords you can see which times are performing better for you.
If you’ve got times that just don’t work for you at all and you’re not
generating any conversions, why not switch them off or at least lower how
much you’re willing to spend on a click during those periods so that you’re
spending the money on the times that actually convert best for you.

There are a couple of top tips. As I said, we’ve written a number of blog
posts and we’ve filmed a number of videos on the subject of saving money
with PPC or improving your PPC campaigns. So do take a look at those. If
you’ve got any questions, then please do get in touch. Thank you very much.


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