You must know whether your PPC ROI campaign is increasing your bottom line. But, knowing the best ROI calculation is not easy.
Calculating ROI is fundamental to any advertising, but often, advertisers either don’t understand it or even consider it. When you hire a digital advertising agency, many develop their campaigns solely on cost per conversion or the conversion rate. They choose the right keywords, and that’s it.
That might be OK if you’re only looking for leads. But, it is not OK if you are selling goods or services. Even if you’re using PPC ads to generate leads, you still need to calculate the ROI for your PPC campaign.
The entire point of any advertising is to boost a company’s profits, either through directly selling goods or services. Or, the ROI might be more long-term by raising brand awareness or collecting leads. But in any case, advertising needs to turn a profit, or it’s simply a waste of money.
What are the Different Methods of Calculating PPC ROI?
According to Digital Authority Partners, there are three popular methods to calculate PPC ROI: profit per click or impression, return on ad spend, and return on investment.
As you probably know, ROI is short for return on investment. IIn accounting, your profit minus the cost calculate ROI. Usually, this is the cost of the goods sold. But, when applied to digital advertising, what counts as a cost can be confusing. So, to clear up that confusion, we’ll go over the three methods of calculating PPC ROI.
Profit Per Click and Profit Per Impression
PPC ads should maximize profit by attracting more visitors to a website, thus increasing sales. That’s why using profit per click or impression is critical. Of course, you can calculate the total advertising cost of selling products or services, but calculating the profit per click or impression gives you an overall view.
Profit per metric takes into account the overall search process. PPC conversions involve:
- Choosing the right keywords.
- Putting the ads in front of the right audience.
- Getting these clicks at the right price.
Ultimately, all of this should convert website visitors into buyers.
Profit per click or impression is tricky to calculate, but it’s easy once you understand the metrics.
Once you’ve gathered the data for your impressions, clicks, the total PPC ad cost, and the total value of your sales, you’re ready to calculate. First, subtract the total PPC ad cost from the full value of your sales. You can also factor in any overhead costs if you like.
Calculating profit per impression is slightly different. Divide our profit by the number of impressions. Once you have the numbers, you’ll be able to decide whether to continue using your keywords or test for keywords with a better profit-per.
Return on Ad Spend
When advertisers refer to ROI, they’re talking about return on ad spend or ROAS by subtracting the cost of the PPC ads from the revenue derived from the ads represented as a percentage.
For instance, if your profit from your PPC ads is $1,000, but you paid $500 for the ads, your ROAS would be 100%. Calculating ROAS is easy, making it an excellent place to start when you need to calculate PPC ROI.
Many online advertising platforms use ROAS calculations in their bid optimization algorithms. As a result, this makes ROAS something to consider when bidding on your PPC keywords.
Return on Investment
ROI looks very similar to ROAS, but the difference is in calculating the cost.
Rather than simply calculating click costs, eCommerce sites also need to calculate the costs to acquire the goods and ship the orders. In addition, eCommerce operators also need to factor in the price of returns and credit card processing fees. Also, there is the cost of the warehouse, offices, and staff salaries.
Even if you’re using PPC to generate leads, costs still need to be factored in. For example, consider expenses related to keeping a website up and running and staffing costs.
You need to factor in every cost, not just the PPC costs, to gauge the cost of your PPC ads. You’ll need the formula to assess the success of your ads that include every cost associated with running your business.
Which PPC ROI Method is Best?
Like so many things associated with running a business online, there isn’t any single way to calculate PPC ROI. You may find that you’ll need to use all three methods to get an accurate idea of how your PPC campaigns are going. However, your type of business will make one or another method better for you.
All three methods of calculating PPC ROI can help measure the success of your digital ad campaigns. By tracking these metrics, you’ll be able to gauge your profit and understand your target audience. In addition, understanding your target audience’s search behavior can help you to better position and optimize your PPC ads. In this way, you’ll see where you need to adjust your advertising budget.
Knowing how to calculate the ROI for your digital advertising campaigns is extremely important. Once the metrics and calculations make sense, you can apply them to your campaigns.
While you might have outsourced your digital advertising to an agency, it’s still important to understand the metrics yourself. Also, working with a digital ad agency that understands and uses every method to calculate PPC ROI is essential. Otherwise, your campaigns might fall short of hitting the mark.
Getting clicks that don’t convert into customers is a waste of money. The bottom line is that PPC advertising is not simply about getting clicks. It’s about increasing your profit. The metrics can indicate where your campaigns need improvement if your advertising is not paying off.