Calculating ROI is one of the basic tenets of PPC, and yet many advertisers don’t consider it or even understand it.
A lot of advertisers perform campaign optimizations based solely on conversion rate or cost per conversion, choosing the ads and keywords with the best metric and calling it a day.
For ecommerce goal analysis the method of calculation is similar. The biggest difference in the Ecommerce data is that it’s real and accurate compared to a lead form’s estimated goal value.
In Adwords, we can look at the money we spent to reach our goals in the same time frame. Compare that with the purchases made through CPC and we have a precise number we can confidently call ROI.
Conversion rates (found in Google Analytics)
Conversions (found in Google Analytics)
ROI (found in Google Analytics and Adwords)
Revenue (found in Google Analytics)
I’ve always found that ROI is one of those terms that has been over-used and abused by so many people and as such, there is confusion on how best to calculate it. Personally, I like to use the following formula when we are discussing the ROI for any PPC campaign:
ROI = [Contribution] / [Cost]
So to calculate Contribution for a PPC campaign:
([Your average profit per sale] x [Estimated number of Conversions]) – [PPC Spend]
To demonstrate more fully, let’s take the following example:
Monthly PPC Spend: £1,500
Average Profit per Sale: £50
Number of Conversions (Sales) per Month: 75
and so the Contribution to Margin of the PPC campaign is:
(£50 x 75) – £1500 = £2,250
and your ROI would be:
£2,250 / £1500 = 150%
Phew! But there is an easier way. We have just created an ROI estimator / calculator spreadsheet that you can now download for free. We hope that it will be a useful tool for you when reviewing your PPC campaigns.