Article

Kylon Gustin
Kylon Gustin 14 May 2015

Easy Google Adwords ROI Calculator

Never wonder if your Adwords campaign is paying off.

Are you considering using online advertising to increase leads, or are you wondering if your online ad campaign is truly profitable?

In either case, there’s a simple way to determine the potential profit that an online ad campaign can produce. Just follow these steps or watch the video at the bottom of this post.

  • Let’s say we have a $50,000 monthly budget to drive traffic to our site for the search term "student loans."
  • That comes out to $1,666 a day ($50,000 / 30).
  • Using the Google AdWords tool, we determine that we can stay in the top 3 ad positions by spending, on average, $3.79 per click.
  • This will drive 440 people to our site each day ($1,666 / $3.79), or 13,200 people a month (440 x 30).

Let’s say that our website is Discover.com, and we’re getting 13,200 potential customers to our website each month for the total cost of $50,000. Is it worth it? Let’s see. There’s a few things that we need to know.

  • How much does it cost to get someone to our website? Well, we already know that it’s $3.79. This is called the cost per click (CPC).
  • How many of those visitors become a lead, or in this case, click the "apply now" button and complete the form? This is cost per acquisition (CPA).
  • Of those that complete the form, how many become customers? This is called customer acquisition cost (CAC).
  • And finally, this is really important, how much is a new customer worth? This is called customer lifetime value (CLV).
  • We know, based on using goals and Google Analytics, that 5% of visitors from this ad campaign will complete our form, this is our conversion rate.
  • With this, we can calculate that our cost per action is $75.80 ($3.79 / 5%).
  • We also know, based on our sales history, that we can convert 10% of these leads to actual customers.
  • This tells us that our customer acquisition cost is $758 ($75.80 x 10%).
  • We also know that our customer lifetime value is $8,000, which yields us a $7,242 gross margin per new customer over their lifetime ($8,000 - $758).

Since I’m not completely familiar with this industry, there may be other factors that lower the gross margin, but the objective here is to demonstrate how you can calculate your ROI with an online ad campaign.

Using the same metrics, we can estimate how much revenue we can generate each month for our $50,000 investment.

  • We’re going to be driving 13,200 people to our site each month, so we multiply that by the 5% conversion metric, which gives us 660 new leads every month (13,200 x 5%).
  • We know that we’re going to convert 10% of those leads to customers, which equals 66 new customers a month (660 X 10%).
  • We multiply those 66 by the $7,242 gross margin, for $477,972 gross margin on our $50,000 investment ($7,242 x 66).
  • That is nearly a 1000% ROI. Keep in mind this is just for one keyword, "student loans."

The process of developing an ad campaign and choosing your keywords is the subject of another discussion. I have a video on my LinkedIn profile titled "Instant Gratification - Basics of PPC" that addresses a number of helpful factors.

I hope you have found this helpful. If you would like to discuss your Digital Marketing needs, please connect on LinkedIn or visit www.SpiGlass.com.



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