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Calculating return on investment from your Google AdWords campaigns

calculating-return-on-investment

Calculating return on investment from your Google AdWords campaigns

Knowing your return on investment (ROI) is crucial if you’re going to spend your marketing budget wisely. Although ROI is well known to be a key performance indicator (for everything, not just online marketing), 76 per cent of marketers are still either not measuring the ROI of their AdWords campaigns, or are not doing it properly. The result? Thousands of chief executives who still don’t know whether all the money they are pouring into AdWords really works.

We get told lots of encouraging statistics, such as ‘Google AdWords can make £2 for every £1 you spend’ or ‘ads in first position get a 7.9 per cent click through rate’, but how do we know it’s really working for us unless we measure the results? Here’s a quick run down of how to calculate your return on investment for your AdWords campaign.

What is return on investment?

The return on investment (ROI) of any activity is basically a representative percentage of the amount you put in compared to the amount you get out. Sounds simple, right? Well, it is, but maybe not quite that simple. To an analyst who is responsible for search advertising, ROI will mean nothing more complex than the top line revenue generated from spending on advertising. The spend is simply the amount of money spent with Google and the return is the total amount of money made by the business.

However, for most of us, things will not be that simple. Perhaps we’re not trying to sell an actual product, but rather boost engagement, promote newsletter sign ups or simply get more traffic to your website. In the main, measuring your ROI doesn’t need to be complicated, at least when you know how.

Measuring your ROI for sales

In order to effectively measure the return your AdWords campaign is generating for your sales, you’ll need to know a few things:

  1. The cost of your products: How much does each unit cost to make?
  2. The revenue generated from your ad campaign: Orders will be tracked via clicks through your Analytics software
  3. How much you’re spending on advertising: Freely available in your AdWords account

If you know all these things, measuring ROI shouldn’t be too difficult in terms of online sales. However, you will need to ensure you are effectively tracking all your conversions, which can be done in a couple of simple ways.

Firstly, your ad should be going to a landing page which is specific and unique to your AdWords campaign. This is good practice not only for tracking your sales, but also to maximise your return on investment from using AdWords. By creating tailored landing pages for different ads, you can grasp the specific user intent, whether they are looking for information or are ready to buy and can ensure your messaging is in line with what that user is seeking.

Secondly, you can set up conversion tracking in Google AdWords itself. To do this, go to your AdWords account, click the tools tab and select ‘conversions’ from the menu. To track conversion sources via your website, choose this type of tracking and decide whether you want it to track the value of that customer to your business or simply to count the number of hits. You’ll be given a tracking tag which can be added to your website, and Google will automatically record the click throughs on your behalf.

It’s a good idea to put your tracking tag on the ‘thank you’ page once the transaction has been completed. You can use this for newsletter sign ups, competition entries and other transactional processes as well as direct sales. With all this information in place, tracking ROI for online sales is simple. But, of course, your campaign may generate more than online sales, so you need to know how to account for these too.

Measuring ROI of other interactions

Depending on the nature of your business, and the campaign you are running, there many be numerous other interactions generated thanks to your activity on AdWords. Here are some of the most frequently encountered interactions, and how you can account for them when considering ROI from AdWords.

  • Offline sales

If you have a bricks and mortar store, you may well generate significant numbers of offline sales as a result of AdWords advertising. Research has shown that 88 per cent of shoppers will either frequently or occasionally browse online but finally purchase in a store, so these could add massively to your overall returns.

A good way to track offline sales is to offer a coupon or discount code via the landing page, which has a specific code that your sales assistants log in store. By using this, you’ll be able to track which in store purchases are made as a result of your AdWords campaigns, and can add these sales to your totals.

  • Website traffic

Tracking website traffic is super straightforward, but not easy to put a value on. Using Google AdWords, you’ll be able to see how many clicks your ad generated, and what your click through rate is. According to research, a Google display network click through rate of just one per cent is pretty darn good, and on Google search, an around 3 – 4 per cent is a good average to aim for.

The easiest way to put a monetary value on each visitor is to look at your overall value of a lead. This is simple to calculate by looking at your overall net profit and dividing it by the number of leads you received in that time period. It’s not fool proof but should give you an indication of the value of generating traffic to the website, as well as how effective your campaign really is. More effective campaigns will have higher lead values, as more customers will go on to convert into sales, whereas poorly constructed campaigns may be costing you a fortune in clicks but failing to translate to concrete sales.

  • Brand awareness

You might not always be aiming to generate sales. It could be that you are launching a new product or promoting an event, so although it’s not available yet (and therefore can’t be counted in the traditional sense), you are aiming to build a buzz and boost brand awareness. Looking at ad impressions, click through rates as well as reach and frequency measurements will help you judge how successful this has been.

brand-metrics

Placing a pound value on these performance indicators is pretty impossible, because you aren’t able to actually sell those users anything yet. If you are able to link top-of-the-funnel activities such as social shares and backlinks to your bottom of the funnel purchases, you may be able to place a value on brand awareness. However, most CEO’s understand that all attention is good attention and will appreciate the difficulty of tracking this metric.

  • Other conversions

There can be many other actions that you want customers to take as a result of your campaign. Maybe you’re keen that they download your eBook, sign up for a newsletter, call your business or take part in a webinar. Again, all these things are easy to track using Google’s conversion tracking tag, but not so simple to put a monetary value upon.

Knowing your cost per conversions will help you assign a value to each interaction and will enable you to quantify the success of your campaigns. A lower cost per conversion will indicate a strong performing campaign, whereas a higher one suggests you’re getting a lot of low value traffic for each click. Aim to drive down your conversion cost through better ads, strong landing pages and relevant keyword targeting to improve this performance indicator.

Not everything is realistically going to be able to be measured in pounds and pence, so it’s important to track everything and place value on things like brand awareness as well. It is said that it takes six to eight ‘touches’ to get a customer sales-ready, so every time someone sees your name, reads your ad or likes your Facebook post, they’re inching another step closer to being converted into a paying customer.

Is that everything?

We’ve covered all the ins and outs of calculating ROI of your AdWords campaign, but is that all you need to think about? Well, no, not really. There is one more metric which is mind-bendingly hard to get your brain around, but which could add serous value to your AdWords campaign, and that’s the lifetime value of your customer.

the-calculator

Calculating the lifetime value (LTV) of your customers can be super-complex, requiring you to know your audience inside out; how much repeat business you’re likely to get, for how long and whether that repeat business is dependent on further advertising spend. It’s not crucial that you include this in your ROI calculations but is worth keeping in mind as you improve your analytics and learn more about your customers.

Whichever means you choose to measure your ROI, the important thing is that you do it. If your ad investments are generating profit, great, keep up the good work! But in the event that some of your activities are haemorrhaging budget without showing a decent return, it’s crucial that you plug that leek as quickly as possible.  That way you can be confident that your AdWords spend is really performing for your business and keeping your bottom line growing in a healthy way.

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Vanessa Simms
Vanessa writes on a range of subjects for the Search South blog, but has a strong focus on her core interest area of Google AdWords management best practices.