Google gives advertisers the ability to place ads based on specific searches. As the largest search engine in the world, this gives businesses large and small huge opportunities. According to the Google Economic Impact Report, average Adwords ROI is 100%. With the proper set-up, it’s easy to calculate your own Google Adwords ROI, and make sure you’re not overspending. The way to calculate ROI on Google Adwords depends on what you want to accomplish with your ads, and what your sales and marketing process looks like.
Calculate Adwords ROI Easily and Accurately
Google Adwords ROI by Conversions
Few other types of advertising media offer more direct conversion tracking than Google, making it easy to get the most bang for your marketing buck. Conversion tracking is built into Google Adwords, and it is relatively easy to set up. This allows you to see what a user does when they click on an ad, and assign a value to a completed conversion. With this information, combined with the advertising data offered through the Google Adwords platform, you can easily calculate and compare Google Adwords ROI month over month, or compare it to your other marketing efforts.
There are several options available to set up conversion tracking on Google Adwords. To set up you conversion events, start at your Adwords dashboard, click on Tools, and, under Measurement, choose Conversion. From here, you’ll have the option to track several different types of conversions, including online sales, actions taken on a landing page, app installs, calls, or imported conversions from another system.
Which you choose will depend on what you want your ads to accomplish, and what keywords you’re targeting. If you’re targeting buying keywords, trying to get more leads, or tracking event signups, you’ll want to use the first option. If you want customer to call you directly, such as to place a delivery, the direct call option will make more sense.
You’ll then have a number of ways to assign your conversion action, and assign a value to it. You can use the same value each time a conversion occurs, or give each conversion a different value. There are several ways you might use each of these selections. Each will depend on how you allocate your marketing budget. We’ll explain these in more detail below.
ROI by Purchase
When you select Purchases as your conversion event, you can use the same value for every purchase, such as an average product price, or you can use different values on different conversions, like different products. To do this, you’ll need to place snippets of code Google provides on landing pages a user will see once a purchase is completed. This way, you can see the value of each purchase produced through Google Adwords. Once it’s set up, this is an accurate and straightforward way to calculate Adwords ROI. Then you can simply place your numbers into this equation:
(total purchase value – Adwords spend) / Adwords spend
ROI by Average Lead Value
If you’re using Adwords to help build your lead list, you may need a different approach. The same options will still be available to you, but how you choose the value of your leads will be different. Knowing that not all the leads generated will result in sales, and that this may depend on your marketing and sales alignment, what’s the most accurate way you can calculate the ROI of Adwords leads alone?
To get an approximation using the average value of each lead, multiply the total leads generated (via Adwords) by the average conversion rate of leads into sales (in general). Then, multiply this number by average sales per lead to get the value. You can then use this number in your ROI equation.
To get a more accurate number, combine your Adwords data with your CRM system. Then, you can see which leads from Adwords moved completely through the sales and marketing funnel. This is especially helpful if you have a long sales cycle. Many CRM systems can also organize this data automatically, removing the need for time-consuming calculations and bulky Excel sheets.
ROI by Lifetime Customer Value
When building your lead list, you might want to assign value to the conversion event using lifetime customer value. This is especially true if you tend to have a smaller group of repeat customers. This will require a similar equation as the average lead value. Multiply the total leads generated from Adwords by the average conversion rates of leads into repeat customers. Then, multiply this number by the total lifetime customer value. Keep in mind that not all customers are repeat customers, and that customer retention activities will play a part here as well.
Once you have these numbers, you can assign them to your conversion events as needed. Then, as you build Adwords campaigns, you can assign each conversion event to the appropriate ad set. Be sure to assign these correctly, and to use keywords that make sense. If your audience isn’t searching these keywords, your bid is too high to deliver ROI, or the keywords aren’t relevant to your landing page or offer, your Adwords ROI will dwindle. With all parts of your strategy in place, you can build high-quality ads that engage Google users.