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Does your Google AdWords campaign create a profit or just increase your turnover?

When you are paying for a Google AdWords campaign, it is important where possible to measure the profit it creates and not just conversions, visits or value of sales, although these are also helpful indicators to performance. One way to do this is to track in detail the important events/actions in the client journey and the percentage of these that lead to a sale and then create your own easy to track ROI (return on investment) measurement.

Google AdWords

How your Google AdWords campaign might look

ROI can be over simplified but we are always amazed how few companies, especially B2B companies, have an ROI model to help track the value that their Google AdWords campaigns help to create for their business. Or the value of any of their marketing for that matter. It is surely more important to have a simple measurement than to have none at all and to just guess at what is working – this may be sufficient when times are good but will lead to problems and wasted opportunities and profit when times aren’t so good.

ROI is a good metric to use as it measures revenue made in relation to capital invested and therefore the efficiency of your investment. You can then compare the ROI of your AdWords campaigns with that of other online or offline marketing campaigns, and decide where your money would be best invested in the future.

To help measure your AdWords ROI you will need to track events and conversions. These are actions that you want your customers to take after clicking on your ads, such as making a purchase, completing an enquiry form etc. In order to measure these accurately you will need to add conversion tracking to your website and link it to Google Analytics.

Put simply ROI is how much revenue you have made from your ads compared to how much you have spent on them. Take the revenue that resulted from your ads, subtract the advertising costs, then divide by your advertising costs and multiply by 100 to get your ROI percentage.

For example, let’s compare the following AdWord campaigns:

Campaign X Campaign Y
Total Spend £1,000 £250
Clicks 5000 1000
Conversions 50 25
Conversion rate 0.01 0.025
Revenue £1,500 £750
ROI 50% 200%

 

As you can see, although Campaign X generated more clicks, conversions and revenue, Campaign Y was actually more efficient with an ROI of 200%. While both campaigns were profitable it would be worth investing more in Campaign Y next time.

What about conversions that aren’t revenue based?

Conversions such as newsletter signups, contact form submissions and white paper downloads might not be a direct source of revenue themselves, but they can help to attract potential clients and so are worth including in your ROI calculations. This can also be helpful in working out whether investing in these types of content is worthwhile.

To start off, from your average number of monthly downloads, how many of these users are potential clients that you can target? Then, once you target these potential clients, how successful are you at converting them? Work out the average value of those potential clients once they have signed up with you, and from here you can work out the conversion value of the initial download/form fills.

Using a white paper or e-book download as an example, say that from every 20 downloads there is one potential client that you can target. If you find that for every 5 potential clients that you target, you have 1 client who signs up with you, then you will need approximately 100 downloads in order to successfully take on a new client. At this point it is important to remember that you need to make sure that any Google AdWords campaign drives a profit not just turnover. So, if the lifetime profit of each of your clients is worth an average of £1,000 and you are happy to pay £100 out of this profit to win each new client then we can calculate that the value of each download is £1.

Obviously, Google AdWords campaigns and eBooks help to increase brand awareness and traffic from other sources, and not all conversion/enquiries are trackable so you may want to increase the value of your figure to take this into account. But even if you increase it to a value of £2 per download then you need to make sure that the AdWords cost per download isn’t more than £2 (you need to log into your AdWords campaign and combine cost per click, number of clicks and conversion rate to work this out).

These types of calculations are very useful when working out where to invest money within your business. If you are seeing a positive ROI from your eBooks or downloadable content then it is great to see that the money you spent in creating and promoting it has been worthwhile.  In contrast, if you are seeing low download rates and not attracting relevant users then you can consider whether it is worth focusing on shorter and more cost effective types of content such as blogs, and investing more in direct marketing to help build brand awareness in another way.

For more information on conversion tracking, or for AdWords support from the experts at Varn get in touch with us today.