How to Measure Your Google Ads ROI
Measuring your Google Ads ROI is an important step in effectively optimizing your ad campaigns. You must know how much you need to invest and how much that investment should pay you back. That’s the only way to stay on top of your campaigns to make them a true success.
Think of Google Ads like a vintage slot machine where you pull the handle and win the jackpot when 3 BARs are in a row. Google Ads is similar in that you need to get the right combination of targeting, bids, and advertising copy to hit the jackpot and drive quality leads and sales. While slots are heavily dependent on luck, Google Ads isn’t as much as long as you know how to manage them properly. That’s the great part about Google Ads.
With that, let’s dive into how to measure your ROI with Google’s advertising platform.
Measuring Your Google Ads ROI
The American Economic Association reports the average ROI of Google Ads is $2 in revenue for every $1 spent. This is the average, so some businesses have a lower ROI while others have a higher one.
Some of the reasons some people aren’t seeing such a high ROI is because they are not:
- Targeting the right search terms
- Choosing the best bid price
- Measuring their revenue correctly
Knowing how to do each one of these correctly can shed some light on what to expect from the return on your Google Ads investment.
Accurate Conversion Tracking
The first step is to set up conversion tracking. Clicks to a website does not always mean sales. The only way to qualify a click is to be able to track the click from the ad to the completion of a sale.
One way to do this is to track the click from the ad to the final “Thank You” page after a sale has been completed. This is, of course, for e-commerce or where services are purchased online. For phone call leads, call-tracking could be used.
Once the conversion tracking is set, you can move on to the next step, which is targeting the right search terms.
Targeting the Right Search Terms
Targeting the right search terms is important in measuring ROI for Google Ads. It’s crucial that your ads are targeting buying-intent keywords, rather than research-intent keywords. Afterall, ROI is determined by the sales resulting from ad clicks.
While some industries have obvious buying-intent search terms, there are others that do not. This could make choosing the right ones difficult, leading to lower returns.
In that case you’ll need to test your keywords over time and measure the results. Based on the number of leads and sales calculated from your conversion tracking, you’ll be able to make smarter decisions about bidding on your keywords.
Considering Bid Price
If sales revenue exceeds ad costs, then you know your ROI is positive. That’s obvious and easy to calculate.
But how do you know what bids to use for each keyword to generate a desired ROI?
To answer that question we need to first calculate earnings per click. Earnings per click is how much revenue you generate per click on your ads, which will vary from keyword to keyword. To calculate earnings per click, simply multiply the revenue generated per conversion by the conversion rate of the keyword. For example, if you generate $200 per conversion and the conversion rate is 2%, then your earnings per click is $4.
That means on average you’re generating $4 in revenue per click. Obviously, if you bid and pay more than $4, you’ll lose money and your ROI will be negative.
Now that you know your earnings per click, you can calculate the bid price you’ll need to pay to generate your desired ROI. The formula is: CPC = (earnings per click) / (ROI + 1). For example, if your desired ROI is 50% and your earnings per click is $4, then your target cost per click (CPC) is $2.67.
Measuring Google Ads ROI takes patience, time, and a bit of analysis. However, once you’re able to track conversions and identify the best search terms that have profitable bid prices, you will start to see how much easier it is to predict your ROI in relation to how much you’ve invested into your ads campaign.
Want more Google AdWords tips to improve your performance? Click here to grab a copy of our Ultimate Google AdWords Checklist.
Phil is Founder and COO of Main Street ROI. Phil leads the company’s operations and is primary creator of Main Street ROI’s marketing training programs. He is an expert in search engine marketing, website analytics, and sales funnel optimization. Phil’s marketing thought leadership has been published on Forbes.com, Inc.com, MSN.com, and many other major business media outlets.
Phil earned his Master of Engineering Management degree from Thayer School of Engineering and Tuck School of Business and his Bachelor of Arts and Bachelor of Engineering degrees from Dartmouth College. While attending Dartmouth, Phil started every game on the varsity football team as the defensive safety.