Measuring the ROI on your AdWords advertising, whether you use it to increase sales, generate leads, or drive other valuable customer activity will help you evaluate whether the money you have spent on it is making profits for your business.
2 Measuring your return on investment matters
Your handy ROI refresher
Simply put, ROI is the ratio of your net profit to your costs. It is based on your specific marketing goals and shows the real effect that your advertising efforts have on your export market.
How it works:
The exact method you use to calculate ROI will depend on the goals of your AdWords campaigns.
Let’s say you have a product that costs £100 to produce, and sells to your export market for £200. You sell six of these products as a result of advertising them on AdWords, so your total cost is £600 and your total sales is £1200. Let's say your AdWords costs are £200, for a total cost of £800. Your ROI is (£1200 - £800) / £800 = 50%
In this example, you're earning a 50% ROI. This means for every £1 you spend, you get £1.50 back.
For physical products, the cost of goods you sell to your export market is equal to the manufacturing cost of all the items you have sold plus your advertising costs, and your revenue is how much you made from selling those products. The amount you spend for each sale is known as cost per conversion.
If your business generates leads, the cost of goods sold is just your advertising costs, and your revenue is the amount you make on a typical lead. For example, if you typically make one sale for every 10 leads, and your typical sale is £20, then each lead generates £2 in revenue on average.
The amount it costs you to get a lead is known as cost per acquisition.
What ROI means to you
Calculating your ROI tells you how much money a particular AdWords campaign has generated. It lets you make informed decisions about how to best spend your marketing budget. Knowing your ROI can help you choose to spend more money on a successful AdWords campaign, and less on ones that aren’t getting the results you wanted. Using ROI data can also help you tweak and improve less successful campaigns.
Getting the measure of your ROI
To find your ROI you will need to measure the customer actions which are valuable to you in your new market. These could be purchases, sign-ups, web page visits, leads, or video views. These actions are called conversions.
You can track how many clicks lead to conversions with the free Google AdWords conversion tracking tool. Tracking this can also help you determine the profitability of a keyword or ad, and track conversion rates and the cost for each conversion.
Once you've started to measure the conversions from your new export market, you can begin to evaluate your ROI. The value of each conversion should be greater than the amount that 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 a profit of £5 and received a good return on your AdWords investment.