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ROI: turning three letters into big figures

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If you’re going to work in the world of pay per click (PPC), you have to get to grips with endless TLAs (three letter acronyms).

Once you’ve grasped the basics, you’ll know all about CTR, CPC and CPA. But there’s one acronym that isn’t mentioned in Google’s Adwords interface, and it’s the most important of the lot.

ROI.

ROI, or Return on Investment, is overlooked way too frequently. But if you’re optimising a PPC campaign, there’s nothing better to show you which areas of your campaigns are working, and which aren’t.

So how do we work out ROI?

How to calculate ROI
There are loads of ways to calculate ROI, none of which are wrong. I’m going to show you how I calculate it, and what the final number means.

ROI = (Revenue – Cost)
                  Cost

This calculation gives a ratio of Revenue generated for every £1 spent. Let’s say you’d spent £1000 on Adwords and generated £5000 in revenue. Your equation would look like this.

ROI = (£5000 – £1000)
                £1000

This gives you a ROI of 4. So, for every £1 you spent, you generated £4 in revenue.

So… now what?
Unfortunately Google doesn’t give ROI as an option in its reporting interface. However, if you know your way around Excel, you should have no trouble in using the formula to create a new column in an exported Adwords report.

Once you’ve done this, you can sort your report using the new column and get an instant insight into where your campaign is doing well, and where there’s room for improvement.

For example, if you run a keyword report, add your ROI column and then sort it so the highest ROI is at the top, you’ll easily be able to spot the best performing keywords across your whole campaign.

Top Tip – look for keywords where ROI is high, and then invest in boosting your average position. If the keyword is working well and has potential to generate more traffic, make sure you up your bid!

As you start scrolling down the list, you’ll see ROI getting closer to zero and then dipping into negative numbers. Any keywords with a return of less than zero  are costing you money. Pause them, lower their bids, or reassess your ad and landing page.
 

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