Simplified Version of Calculating ROI on Google AdWords

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Now that we’re in the digital era, it requires a fabulous online marketing strategy for a business to be successful. The catchline of this digital generation is to promote your product on the platforms where your targeted audience spends most of its time.

Reports from Forrester Research and eMarketer show, in 2021, the average firm is expected to allocate 41% of their marketing budget online, and this rate is expected to grow to 45% by 2021.

Google AdWords, Display Advertising, Email Marketing, Pay-Per-Click Advertising (PPC), Search Engine Optimization (SEO), Social Media Marketing (SMM), Viral Content Campaigns are some of the best internet marketing channels you can opt for in order to secure maximum online exposure for your business.

Irrespective of the internet marketing channel you are using, the decisive factor of making the most out of your digital advertising campaign is to make sure you’re getting the full value out of every dollar you have invested.

According to the online marketing experts, the digital advertising landscape can be overwhelming especially for a business that has no strategic vision in terms of allocating budget and measuring ROI.

What is ROI and why businesses should take care of it?

Most of us are familiar with the term ROI which means Return On Investment but, very few of us know the exact meaning, importance, and implications of ROI.

Getting our money’s worth is a basic concept we have regarding ROI. But in the marketing arena, it is much more than just getting your money’s worth; it’s about getting the maximum out of your investment.

Everyone expects a good return on investment, so what difference you could make?

The answer is: Try to secure not the “good” but the “best” out of your online marketing investment. This will keep you ahead of your competitors and business rivals for a long period of time.

  • ROI is the calculation that helps you to better understand the bottom line return on any investment.
  • It is a simple and efficient way to review marketing strategies and tactics.
  • Return On Investment is a useful starting point for preparing upcoming marketing campaigns in order to maximize sales volume.
  • Gives you a sense of current consumer behavior so that you can market to them effectively.
  • It helps you to determine whether a particular investment is worth the money and time.

Calculating Return on Investment on Google AdWords

Google AdWords is perhaps the most powerful and potent tool for conducting paid online advertising operations. Over the years, a huge number of businesses from all over the globe are integrating Google AdWords into their promotional campaign.

Compared to the other internet marketing channels, search advertising is less money-consuming with AdWords as the advertisers only have to pay when their ad gets clicks.

The best thing about AdWords is that anyone can get started in a matter of minutes. But measuring Return on Investment on Google AdWords is a tricky task that cannot be performed by anyone.

To ease your problem, here is a simplified version of calculating return on investment on Google AdWords.

Read Also: 6 Reasons your Business should use Google Adwords

ROI can be determined using the following formula:

(Revenue – Cost of goods sold) / Cost of goods sold = ROI

ROI formula

Tools you can use for calculating ROI on Google AdWords-

For all businesses, ROI is the most vital measurement to identify the real impact of their AdWords adventure.

Google has made it so brain-dead simple for the advertisers to get the information about the number of clicks and impressions they are getting that will help them to know the success rate of their ads.

Two effective tools they can use for this purpose are:

  1. Google AdWords Reporting Tool
  2. Google Analytics
ad campaign report
sales performance report

Set of data you need to gather for measuring Google AdWords ROI-

Measuring the ROI is not a simple matter of “money in, money out.” You need to gather a range of information in order to do a proper calculation of ROI for your AdWords campaigns including-

  • The range of dates you are willing to analyze.
  • The number of sales took place via phone calls and through the online portal.
  • The costs of your goods.
  • Your advertising costs.

Clear your doubt between Cost Per Click and Cost Per Conversion while deciding ROI-

Calculating the ROI can be misleading if you can’t differentiate between Cost Per Click and Cost Per Conversion of your ad campaign. Sometimes a visitor may click your ad but doesn’t make any purchase.

A click is a visit to your site, a possible new prospect. A competitive term on Google AdWords could cost you $10 a click.

Cost Per Conversion signifies the cost it took to get a conversion or how much did you pay for each new lead? Compared to cost per click, cost per conversion is expensive.

Cost Per Conversion formula-

Cost Per Conversion = (Total Sales Funnel Cost + Total Ad Cost) / Total Number of Conversions

The interesting thing is that you need to take into account both of them while calculating the ROI of your Google AdWords campaign.

AdWords Is More ROI-Friendly than other marketing platforms-

A huge number of advertisers prefer AdWords because it offers the option of easy measurement of the impact of their advertising campaign.

In order to identify the influence of Google AdWords with other online marketing channels by clicking on “Conversions” in the left column of Google Analytics, then ‘Multi-Channel Funnels’, then “Assisted Conversions”.

AdWords is more ROI-friendly than traditional advertising. It helps you track data on how your campaigns are performing and whether or not you are finding success.

With AdWords, everything is measurable, and you can see what is working and what isn’t. Therefore, using this campaign comes with a host of advantages for Web sites and businesses.

If you smartly calculate your budget with the market you’re competing in, Google AdWords could prove exceedingly valuable. The more cleverly you use it, the more benefits you will garner.

Author Bio:

Salil Panikkaveettil is an ROI-driven Google AdWords campaign management expert. He likes to share his knowledge with his readers and provide them with the best information on various digital marketing topics.

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