explaining adwords roi

8/3/2019 Explaining Adwords ROI

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Here is the information explaining why we request the profit per product to help us

calculate the exact ROI for your Adwords campaign. Ultimately, this ROI calculation willhelp our team to determine the best way to spend your advertising dollars. Recall,the goal is to find the keywords that are really driving the most profit and not just the mosttraffic. The story below outlines the theory and process more clearly so you can understandexactly how this all works.

The ROI metric can be defined in two ways: the revenue generated for everydollar spent on ads, or the amount of profit generated from every dollar spenton ads. I'm going to focus on profit here, since that's what most advertisersinquire about.

AdWords will automatically track the amount spent on ads but you, as thebusiness owner, must define the profit every time a conversion takes place. Ifevery transaction has the same profit (e.g. when you sell a subscriptionorproduct for a fixed price), you can always set the same numeric value thatrepresents your profit for the conversion.

For this ROI Example we will use a camera shopthat sells photography equipmentand provides photography classes.

Clearly the keywords 'photography' and 'photography classes' could bothpotentially be valuable. However, how do you determine which keyword has thegreater potential ROI for the business?

Assume that you have adaily advertising budget of$100. The keyword'photography' generates 110 clicks, resulting in$120 in sales, but it also costs you$60 a day. This results in an ROI of 200% for that keyword.

The keyword 'photography classes' uses only $25 of the daily advertising budget,but generates 40 clicks. These clicks result in $90 in sales, with an effective ROI of360%.

Keyword Clicks Cost Sales Revenue ROI

Photography 110 60 120 200

This advertiser would be better served allocating more of their budget to the'photography classes' keyword because of its higher ROI, despite the fewerclicks for this keyword. Without this information we are left targeting keywords by theCPC and as you can see this would have led to us selecting the wrong keyword as thebetter choice.

Company Registration Number: GB 06737350 VAT Registration Number: 832445536Registered Office: Berkshire House, 252-256 Kings Road, Reading, Berkshire, RG1 4HP.


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This story illustrate how it is possible to miss out on potential profit if closeattention isn't paid to the one metric that often matters the most: ROI. Andwhile impressions, clicks, CTR and costs are all important components that

contribute to the ROI, these metrics only show part of the picture.

In Adwords the advanced conversion tracking option enables you to define avalue for each product and/or transaction. Using the value of the transaction andthe cost data, AdWords can share an accurate cost per conversion.

Once conversion tracking is active, you'll see a few new columns in your Adwords accountinterface. These accounts are

Conv. Rate

Cost/Conv.

Conversions

(Conv. is the abbreviation for Conversions)

However, you will notice that ROI is not one of the new columns present in the Adwordsinteface. To see your ROI based on the conversion tracking information we need to run aKeyword Performance report. This will include the 'Value/cost' column (which is your ROIexpressed as a percent). Note that if you desire we can email you this 'ROI Report byKeyword' every Monday.

For your reference, here is an example of such a report, with the Value/cost column highlighted:

With your report in hand, you can see the ROI for every campaign, Ad group and Keyword.Any time the Value/cost is greater than 100%, you're making money, and the higher thevalue, the more profit you're making.

I hope you have found this short document helpful in understanding how RTN Europe

wishes to serve you to the best of our abilities. The beauty of Online Marketing is the datathat is readily available so one can get accurate facts to help make better business



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decisions.

In closing, I trust with this new understanding your company will be willing to share thismore sensitive information so that we can build for a larger return on investment. If you

have any questions please contact me and we can discuss the Adwords ROI model infurther detail.


explaining adwords roi

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