What Is ROI?

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Return on investment ( ROI ) is the profit made from the advertising money you spent. At a super basic level, if you spend $5,000 on search engine advertising and generate $15,000 in new sales, that's a darn good return on your advertising dollars, right? Your ultimate goal, however, is to increase the total volume of sales at the lowest cost per customer. Assessing a deeper level of profitability enables you to reallocate ad budgets and efforts across the search engines, your product line, and even the campaign components for each product.

Figuring out your ROI isn't hard. You'll need access to the following data for your analysis. (For simplicity's sake, I address the ROI of one product throughout this chapter. You'll likely sell multiple products, or possibly services.)

  • Ad Cost: The amount of money you spend during a specific timeframe (many marketers run weekly or monthly ROI reports ). This data is provided by the search engines.

  • Clicks: The number of visits from your paid listings. This data is provided by the search engines.

  • Product Price: The retail price of a product. You have this data.

  • Number of Sales: The number of completed orders from your paid listings for that product. This data is generated by your e-commerce solution.

  • Revenue: The dollar amount generated from completed orders from paid listings for that product. This data is generated by your e-commerce solution.

All you need now is to do a little math. Follow the simple formulas below using the data you identified above.

  • Ad Profit: The amount of money you earned after advertising costs:


  • CPA: The amount of money you spent to get each sale:


  • ROI: The profitability based on a percentage:


Let's look at an example. Pretend a company sells a $15 product. The company spent $500 on one search engine advertising campaign and received 2,000 clicks. If 1% of these visits produced sales, then this campaign wasn't profitable. At a 5% conversion rate, it was:

Unprofitable ROI

Profitable ROI

Ad Cost: $500

Ad Cost: $500

Clicks: 2,000

Clicks: 2,000

Product Price: $15

Product Price: $15

Number of Sales (1% conversion): 20

Number of Sales (5% conversion): 100

Revenue: $300

Revenue: $1,500

Ad Profit: ‚ $200

Ad Profit: $1,000

CPA: $25

CPA: $5

ROI: ‚ 40%

ROI: 200%

This example assumes a company is selling only one product. An ROI report should be created by search engine, product, and associated keywords per product. The spreadsheet in Figure 14.1 shows a more comprehensive ROI report.

Figure 14.1. Sample ROI spreadsheet organized by search engine, then product, and the associated keywords.

Tip

Create your ROI report in Microsoft's Excel program and automate the formulas. Each time you run a report, you'll enter your basic ad and sales information and the calculations will instantly generate the ROI data.


Ideally, you'll include ad listings (titles and descriptions) and landing pages if you're testing more than one per product or keyword. Notice that I've set up the campaign to organize the campaigns by search engine. You could instead organize it by product or keywords.

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Search Engine Advertising. Buying Your Way to the Top to Increase Sales
Search Engine Advertising: Buying Your Way to the Top to Increase Sales (2nd Edition)
ISBN: 0321495993
EAN: 2147483647
Year: 2004
Pages: 155

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