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PPC ROI: How to Calculate It

In this article, we will delve into the complex subject of calculating the effectiveness of your PPC campaign.

Fatjon Kabashi

Head of Social Media

PPC ROI: How to Calculate It

Pay-per-click (PPC) digital advertising is one of the quickest ways for businesses to build brand recognition, drive traffic to their websites, and cultivate high-quality leads. Whether your company is just starting out in PPC advertising or has been running PPC campaigns for a while, determining the success of your efforts is important.

 

In this article, we will delve into the complex subject of calculating the effectiveness of your PPC campaign.

Calculating PPC ROI

Determining ROI serves as a fundamental responsibility when overseeing a PPC campaign. According to Google, ROI typically stands as “the most vital metric for advertisers as it demonstrates the tangible impact a PPC campaign has on your business.” 

 

While monitoring superficial metrics such as clicks and impressions is valuable, comprehending how your PPC campaigns contribute to your business’s success is often more critical.

 

ROI constitutes the ratio of your net profit to your total costs. When computing the ROI for your PPC campaigns, make sure to encompass all expenses in your overall cost structure, including:

 

  • Ad Spend: This involves the expenses incurred in advertising on platforms like Google Ads, Facebook, or other search engines and social media platforms.
  • Technology Costs: Account for any technology employed for constructing and enhancing your ads, including SEO or PPC software, design software, and keyword tools.
  • Labor Costs: If you factor in the costs related to the personnel engaged in crafting and overseeing your PPC campaigns, be sure to incorporate the expenses associated with their labor.
  • Third-Party Costs: If you enlist a digital marketing agency’s help or work with an independent contractor, consider these expenses as well.

 

These expenses impact both your total revenue and the overall cost of your paid campaigns when assessing ROI. You can conveniently calculate PPC ROI using the following equation:

 

ROI = (Net Profit / Total Costs) x 100

What Are Facebook Ads?

Facebook Ads is the platform for targeted advertising on Facebook. It allows you to target audiences based on their interests, demographics, and location.

 

Facebook has:

  • An average cost per click (CPC) of 57 cents
  • An average click-through rate (CTR) of 1.32%
  • An average conversion rate of 6.57%

 

Ads can show up in Facebook’s Feed, Facebook Messenger, and non-Facebook apps and websites. Through these ads, you can boost website traffic, lead generation, and conversions. 

 

When launching a Facebook ad campaign, you select a goal that aligns with the desired outcome of your campaign. After your selection, Facebook will suggest images, text, and other options suited to your goals.

 

You also have the option to customize the ad layout by changing the image, CTA (call-to-action) button color, or headline font size. They provide performance metrics so you can track the reach and engagement of users, and the conversion rate. They also allow businesses to test different versions of ads to optimize results over time.

 

Overall, Facebook ads are an effective way to reach potential customers and promote products or services online.

Calculating ROAS

Differing from ROI, Return on Ad Spend (ROAS) gauges the revenue generated for each dollar spent. A sound initial target is to aim for a break-even point and then optimize from there. Understanding your break-even point and setting it as a minimum objective is crucial to prevent unnecessary monetary losses. A ROAS of 1:1, which signifies earning $1 in revenue for every $1 spent on advertising, is the break-even point.

 

ROAS can be quantified as a percentage using the following formula:

 

ROAS (%) = (Revenue / Ad Spend) x 100

 

Google approximates that for every $1 spent on a PPC campaign in Google Adwords, businesses earn an average revenue of $2.

Calculating Profit Per Click

To evaluate your PPC campaigns’ ROI, you must track conversion points – the actions taken by viewers on your website after encountering an ad. Common conversion examples encompass form submissions, phone calls to your business, whitepaper downloads, or purchases.

 

Google provides abundant resources for identifying actions to track and selecting appropriate tracking tools. If you collaborate with a digital marketing agency or are contemplating such collaboration, ensure they possess the expertise to establish and incorporate tracking into your costs.

 

The value of each conversion should surpass the amount expended to acquire it. To compute profit per click, simply divide the total profit by the total number of clicks. For instance, if you spend $20 on 5 clicks to secure a sale, resulting in a profit of $30, your profit per click equals $6. This calculation effectively pinpoints the sources of click revenue.

Differentiating ROI from ROAS

To distinguish between ROI and ROAS, consider an example where a company allocates $2,000 monthly for ad spend on two campaigns partnered with a digital advertising agency costing $3,000 monthly. After a month, they accumulated $8,000 in advertising revenue.

 

For ROI:

ROI = ($8,000 – ($2,000 + $3,000)) / $5,000

ROI = $3,000 / $5,000

ROI = 0.6 (60%)

 

For ROAS:

ROAS = $8,000 / $2,000

ROAS = $4

ROAS = 400%

 

This example demonstrates a $400 ROAS, signifying a revenue of $400 for each dollar spent on advertising. While this is an exemplary outcome, not all campaigns will yield such high ROAS figures.

Leveraging Digital Advertising Analytics for Enhanced ROI

All three of these formulas offer effective methods for gauging your PPC campaign’s success. By closely monitoring digital advertising analytics, you gain a deeper understanding of your target audience and their search behavior. This knowledge empowers you to optimize your ads, making informed adjustments to campaign budgets, thereby bolstering your marketing spend.

So Which Method is Best?

When determining the best method to assess the profitability of your PPC campaigns, there isn’t a one-size-fits-all solution. In our experience with various clients, we employ all three metrics in various ways. The crucial aspect is to select a single method and adhere to it consistently. Frequent transitions between metrics can render them meaningless.

Reporting PPC ROI

Reporting PPC ROI relies on how you define the components of the cost within the formula. You can choose from the following options, but it’s essential to maintain consistency and clarity in your reporting:

 

  • Based on Cost of the PPC Campaign: Calculating ROI based solely on the cost of the campaign itself yields Return On Ad Spend (ROAS).
  • Based on the Cost of the Product & PPC Campaign Together: Factoring in both the campaign cost and the cost of the product provides you with a comprehensive ROI. The inclusion of overhead costs may depend on your company’s policy.
  • As Profit Per Impression and Profit Per Click: Sometimes, it’s advantageous to evaluate ROI concerning impressions (the number of times an ad is displayed) and clicks (the number of times users click through your ad). This approach is beneficial for analyzing the effectiveness of your ads. It allows you to adjust the design, copy, and timing of future ads based on this data.

 

Ultimately, the choice of which method to use should align with your specific business goals, industry, and the insights you aim to gain from your PPC campaigns. The key is to maintain consistency in your approach to ensure meaningful and actionable results.

Final Thoughts

Measuring the success of your Pay-per-click (PPC) digital advertising campaigns is crucial, and this article has explored various methods for doing so, including ROI, ROAS, and Profit Per Click. ROI provides a comprehensive view of profitability, while ROAS focuses on revenue generated per dollar spent, and Profit Per Click helps pinpoint the value of each conversion. 

The choice of which metric to use should align with your business goals and industry, but consistency is essential for meaningful insights. Leveraging digital advertising analytics enables a deeper understanding of your audience and better optimization of ads and budgets. The key lies not only in the chosen metrics but also in your ability to adapt and refine strategies for continual improvement and better results in PPC advertising.

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