
Determining the return on investment, or ROI, of your Google Ads is crucial to ensuring your marketing efforts add value to your business. With a firm grasp on your ROI, you could gain money by realising it.
Google Ads can be extremely valuable, building your revenue base significantly if handled correctly. However, it's important to determine whether your strategy is successful so you can adjust it accordingly. Let's review how to calculate your ROI.
Understanding The Basics
ROI evaluates the effectiveness of your Google Ads campaigns. It helps you measure whether your adverts are profitable and generate revenue against the cost incurred.
In calculating Google Ads' ROI, we will use the term "cost of investment," which refers to how much you spend on your campaigns. We will also use the term "net profit," which is the revenue earned from conversions minus the cost of the ads themselves.
Here is the standard formula for calculating ROI:
ROI = (Net Profit ÷ Cost of Investment) × 100
Tracking Conversions Accurately
To calculate your ROI accurately, you need the correct data to work from. This means having a precise method of tracking conversions. Without this, you won't be able to calculate your ROI.
Thankfully, Google Ads tools help you track different types of conversions, such as sales leads, sign-ups, and other value-adding actions.
To set up your conversion tracking systems, you need to define which conversion actions you wish to track and consider valuable, such as form submissions or product purchases. Each of these needs to be tracked as a conversion.
Once you've made this decision, you then need to set up your conversion tracking in Google Ads by navigating to "Tools and settings," selecting "Conversions," and then selecting the “+” button to create new conversion actions.
From there, you can follow the instructions to determine how to configure tracking for your selected actions.
Lastly, you must implement a tracking code (provided by Google Ads itself). Could you add this code to your website when a user completes a predetermined conversion action? The attached code will track the action and log it accordingly so you can obtain more precise data on the revenue generated from your ads.
Calculating Revenue from Conversions
Once you have the conversion tracking set up as you want it, you need to implement the formula we discussed earlier to ensure the revenue generated from conversions is properly calculated.
This requires assigning a monetary value to each type of conversion so you can calculate the exact monetary value of the investment and its return.
In e-commerce businesses, this is pretty straightforward, as you can generally attribute sales revenue to a conversion on a one-for-one basis. However, you will need to estimate the average value of that conversion for your business in terms of things like lead generation and other non-sales-type conversions. This is not an exact science and might take some adjusting as you gain experience.
To calculate the total revenue generated by a Google Ads campaign, you need to determine the following formula:
Total Revenue = Σ(Conversions × Value per Conversion)
With this in place, you can implement the ROI formula to determine the value of your campaign.
Catch Digital Solutions can help your business ensure a positive ROI on its Google Ads campaigns. Contact us today for assistance launching your business’s marketing efforts into the stratosphere.