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Setting ROI Goals for Your AdWords Campaigns

One of the most important, and most overlooked, aspects of running a PPC (Pay Per Click) campaign is the goal setting. Many people simply focus on getting the most traffic possible for the lowest CPC (Cost Per Click). While this may be a good place to start, it will rarely help you achieve the best possible ROI (Return On Investment) for your ad spend.

Let’s start by looking at the types of campaigns that are usually run, along with how you can set goals for them.

PPC for Branding

This type of PPC is incredibly popular with old-school PR firms and marketing companies that added internet marketing to their normal print and media offerings. Generally, you are told that these ads are not expected to convert into sales, they are just for branding purposes. But, how do you measure brand building since there are no sales tied to the ads?

Fortunately, we can measure increases in brand exposure in several ways.

Google Trends

By using Google Trends you can look for increases in the number of people searching for specific terms. Your brand can be one of them if it’s a large enough brand. For example, this graph for Mountain Dew shows a rather large spike during the first week of June that would be worth looking into. If you were to see a similar spike, or upward trend, during your ad campaigns it might be confirmation that more people are searching for your brand terms.

Mt. Dew Search Trends

You can also track increases in searches based on your brand terms through analytics and the search console. If you create a custom report that includes your branded terms you can follow them over time to look for increases. If you don’t see any, it may be because many branded PPC campaigns aren’t being done to raise brand awareness, but rather, to increase your ad spend.

PPC for Traffic

If your goal is to simply drive traffic, this can be the easiest type of campaign to run. When trying to simply drive traffic your primary goal is to drive as much traffic as possible for as little money as possible. You will be looking at goals that include:

  • Lowering your CPC (Cost per Click)
  • Lowering your CPM (Cost per Thousand Views)

In Google AdWords, you can achieve this by adding more long tail keywords and phrases to your campaigns. Load up your campaign with as many keywords as possible and then begin pausing the most expensive terms to drive your traffic cost down.

In Facebook Ads, you can achieve the same effect by expanding your target audience. If you run multiple campaigns you can determine which audience groups provide the most traffic for the least amount of money.

PPC for Sales

This is the category that most people and websites will fall into. The big decision here is to determine how you want to rate your success. Most people will look at one of several goal types:

  • Cost Per Conversion (The other CPC)
  • Earnings per Click (EPC)
  • ROAS (Return on Ad Spend)
  • ACoS (Advertising Cost of Sales)

Cost Per Conversion:

You can work on lowering your CPC with better ad targeting or lowering your cost per click. This is a straightforward calculation where you divide the cost of your ads by the number of conversions. If you spend $300 on your ads, and you make 23 sales, then your cost per conversion is $13.04 [$300 / 23 =  $13.04]. As long as your product is worth more than that, you should be able to make a little money.

Earnings Per Click:

This valuation is used mostly by site owners who focus on paid traffic above all other types, or who are involved in affiliate sales. This is calculated by dividing the value of your sales by the number of clicks (visits) to your website. If you have $600 in sales and your website has had 2000 clicks (visits) to your website in the timeframe of those sales, your EPC would be $0.30 [$600 / 2000 = $0.30].

This tells you that you can pay up to 30 cents per click/visit and break even (assuming that you have a digital product that is 100% profit – more on this later).

Return on Ad Spend:

Also referred to as ROI (Return on Investment), ROAS is the calculated ratio of the cost of your ads vs the value of your sales. The formula is simply Revenue/Spend. If you earned $600 and your ads cost $300 then your ROAS would be 200% or $2:1, $2 for every $1 you spend.

Advertising Cost of Sales:

This last calculation is the percentage your revenue spent on ads. This is the other side of the ROAS by the formula Spend/Revenue. In the above case, you have $300 in spend and $600 in sales for an ACoS of 50%. [$300/$600 = 50%].

Expert Level Calculations

All of these calculations give you a great starting point. But what happens when we add in the cost of the person you pay to manage your ad campaigns? Or the cost of developing your website, or the cost of hosting? All of these things can be added to the cost of advertising to give you a more accurate view of your potential profit and earnings.

Take this example.

You have $20,000 in sales and spend $1,000 on advertising. Your ROAS would be $20:1.

Now we add in your PPC consultant cost ($300) and we add in your hosting cost ($50) now your simple overhead is $1350 rather than $1000 making your ROAS $14.8:1. As long as you make more than $14.80 per sale, you should be able to turn a profit.

ROAS for SEO

These same calculations can also be applied to your SEO campaign. If you are tracking your sales in Google Analytics you should be able to determine which sales are coming in through your organic search. If you take the revenue earned from search and divide it by how much you’re spending on SEO, you will be able to see what your return is on your SEO campaigns.

For example:

You make $12,000 in sales from search and are paying $1,000 per month on SEO, your ROAS works out to $12:1. Now, if you spend $5000 per month on SEO and making $1000 in sales, your ROAS won’t look near as good. $0.2:1, or 20 cents per dollar spent on SEO.

Adding it all to cart

As you can see, there are a lot of ways for you to calculate the success of your campaigns. The important thing to remember is to pick the one that works for you and be consistent. Even if your numbers are not 100% accurate, as long as you use the same methodology every time you calculate your numbers, you will be able to see the trends around your advertising and your sales.

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