There’s enough conversion data in Fiona’s Search campaign for Antoine to start evaluating how her ads and keywords are performing. And, Fiona has asked about the return on investment she’s getting from using AdWords to promote her new products.
What conversion statistics would you look at to get an idea of the cost of each conversion? What information do you need to calculate the return on investment Fiona is getting from her campaign?
To use AdWords more effectively, it’s important to understand the business goals you’re trying to achieve and the data that’s most relevant to those goals. Below we’ll go over different metrics to focus on based on your goals.
Measuring website traffic
If your main advertising goal is to drive traffic to your website, try focusing on increasing your clicks and clickthrough rate (CTR). You’ll want to start by creating great ad text and choosing strong keywords so your ads are relevant and compelling to your customers.
What to measure
Here are some important things you can measure to help you track and improve a campaign focused on traffic:
- Clicks and clickthrough rate (CTR): These two metrics help you understand how many people found your ad appealing enough to actually click on it and visit your website. You can use your CTR to gauge how closely your ad matches your keywords and other targeting settings.
- Keywords: You’ll want to monitor your keyword performance with the following strategies:
- Pause or remove words or phrases that aren’t working well for you and add new ones. You can use columns and segments to review your keywords’ clicks, CTR, Quality Score, and more.
- Use keyword match types to control who sees your ads. With some match types, you’ll get more ad impressions, clicks, and conversions and with others you’ll get fewer impressions and more narrow targeting.
- Run a keyword diagnosis to get more information about your keywords’ Quality Scores and whether they’re triggering your ads.
- Search terms: Use the Search terms report to review the list of searches that have triggered your ad, and identify the relevant terms that are driving traffic to your website and add them as new keywords. You’ll also want to add terms that are irrelevant to your business as negative keywords so they won’t trigger your ads.
To measure your results, you’ll need to make sure that you’re measuring conversions. Once you set up conversion tracking, here are some of the important statistics that can help you measure whether your campaign is successful:
|Definition||Why it’s useful|
|Conversions||The total number of all conversions made within your chosen conversion window after an AdWords click.||See if your campaign is generating results for you.|
|Conversion rate||The percentage of interactions, such as clicks, that have led to conversions.||Measure how often an interaction leads to a conversion, on average.|
|Cost-per-conversion||Your total cost divided by your total conversions.||See how much, on average, each of your conversions cost.|
To see the above statistics and other conversion data, you can add conversion-related columns to any of the statistics tables in your account.
Whether you’re using AdWords to increase conversions such as sales, leads, downloads, you’ll want to measure your return on investment (ROI) — the ratio of your net profit to your costs.
Why calculate your ROI? You’ll learn how much money you’ve made by advertising with AdWords and can use that information to help you decide how to spend your budget. For example, if a certain campaign is generating a higher ROI compared to others, you can apply more of your budget to the successful campaign and less on the ones that aren’t performing as well.
Calculate your ROI
The exact method you use to calculate your ROI depends on your goals, but here’s one way to define it:
ROI = (Revenue – Cost of goods sold) / Cost of goods sold
Let’s say you have a product that costs US$100 to produce and it sells for US$200. You sell 6 of these products as a result of advertising on AdWords. Your total sales are US$1200 and your AdWords costs are $200.
Your ROI is… ($1200 – ($600 + $200))/($600 + $200) = 50%
Here’s how to measure your ROI based on your business goal:
Once you’ve started to measure conversions, customer actions that you believe are valuable, you can evaluate your ROI. You can use conversion tracking or Google Analytics to determine the profitability of a keyword or ad, and track conversion rates and cost-per-conversion. Keep in mind that the value of each conversion should be greater than the amount you spend to get that conversion.
If your business is web-based sales, you’ll need the revenue made from AdWords advertising (this is the conversion value that you set), costs related to your products sold, and your AdWords costs.
You’ll want to calculate your net profit by subtracting your overall costs from your AdWords revenue for a given time period. Then divide your net profit by your overall costs to get your ROI for that time period. Here’s the formula:
Ratio to profit of overall costs = Revenue (measured by conversions) – overall costs/overall costs
Page views, leads, and more
If you’re interested in calculating the ROI for a page view, lead, or other goal, you’ll use a different formula.
First, you’ll want to estimate the value of the action that you’d like to measure. To calculate your ROI, you’ll subtract your overall costs from your overall revenue. Then divide your net profit by your overall advertising costs. Here’s the formula:
Advertising ROI % = (Total revenue – Total cost)/Advertising costs x 100
Here’s how the numbers for your AdWords campaign might look:
Campaign costs: US$25000 per year
Net profit: US$100 (after taking your business costs into account)
The value of each lead is your total net profit (500 x US$100) divided by the number of leads (5000), or US$10.
Your ROI for this AdWords campaign is 200% (US$50000 total net profit/US$25000 advertising costs) x 100.
You can also estimate values for your leads and page views using a cost-per-acquisition (CPA) measurement. Using CPA allows you to focus primarily on how your advertising costs compare to the number of acquisitions those costs deliver. Using the above example again, your campaign may cost US$25000, resulting in 500 sales. So your CPA for that campaign is US$50. Here’s the formula:
CPA = (Costs/Sales)
Note that your CPA shouldn’t exceed the profit you made from each acquisition.
Similar to return on investment, you can measure your return on ad spend (ROAS) to see how much revenue you’re generating for each dollar spent on your campaigns. Measuring your return on ad spend can give you insight into how your campaigns are performing and optimize them based on your revenue.
Calculate your ROAS
If you’re interested in calculating your ROAS, you’ll need to know the amount of revenue generated by your campaigns and your advertising costs. Here’s the formula:
ROAS % = Revenue from campaigns / advertising costs x 100
If you use conversion tracking and have set up conversion values, consider using the target return on ad spend (ROAS) flexible bidding strategy we previously mentioned. This bidding strategy can help you to maximize your conversion value, while trying to achieve an average return on ad spend equal to your target (which you’ll know if you measure and monitor your ROAS).
If your main goal is to raise awareness and visibility of your product, service, or cause, you’ll first choose whether you want to increase traffic to your website or encourage customers to interact with your brand.
Once you establish the goals of your branding campaign, you can then measure success by monitoring impressions, conversions, and other statistics.
Here are some important metrics that can show you whether your campaign is successful:
- Impressions: Impressions show you how often your ad is shown on a search result page or other site on the Google Network. Impressions can be especially important in branding campaigns because they represent how many customers actually laid eyes on your ad.
- Customer engagement: You can use clickthrough rate (CTR) to measure customer engagement for Search Network ads. On the Display Network, however, customers on sites are browsing through information, not searching with keywords, so CTR isn’t as helpful. You may want to consider other measurements like conversions for Display Network ads.
- Conversions: 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.
- 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.