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PPC Management: Measuring ROI

Adrian Singer, 11-19-2007
Making money with PPC is easy (!) as long as you understand the basic math involved.

There is a three letter acronym you might have heard about, that is "the secret" of all PPC millionaires.

It's called ROI and it stands for Return On Investment.

If you spend $100 to make a $200 profit, your ROI is 2 to 1.

Quote:
PPC success is achieved by simply measuring your ROI and continually taking the necessary steps to improve it.

Measuring your ROI

I am always surprised at how many companies out there, spend thousands of dollars on Pay Per Click marketing, without taking 5 minutes to setup a way to measure their ROI.

If you're not tracking your conversions, you shouldn't be doing PPC to begin with.

Remember the quote above about PPC success? If you don't know your ROI on a per product/keyword level, you'll never be able to take the necessary steps to improve it.

In order to measure your ROI you have to do two things.

First, you need to Install Google's Conversion tracker on your shopping-cart "thank you" page. You will have to pass the total amount of the purchase to Google's conversion tracker.

Second, you need a system (basic spreadsheet would do) where you list your cost of sales per every offer you are promoting. Cost of sales is defined as "The cost of goods sold plus any expenses incurred in the selling and delivery of the product or service.".

It is super important for you to know your true cost of sales, because it is part of the ROI formula.

Once you have everything, you should be able to look at a PPC campaign that looks like this:



and calculate the ROI for every single product.

Before you go any further, look at the chart above and try to guess which of the two products is more profitable? Is it the first one or the second one?

Take your pick......... Now.

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Without ROI data, all you can do is guess. Now let me show you why ROI data is so valuable.

For the purpose of this example, let's assume -

* Product A (first row) sells for $23 a pop and costs us $6 per sale.
* Product B (second row) is an affiliate offer that pays $48.84 a sale and costs us a flat $20 (paying a copywriter once a week to tweak the copy).

Applying the "cost of sales" to the chart above, yields:

== Product A ==

Total conversions = 60;
Gross Sales = 60 * $23 = $1,380.00
Cost of advertising = $1,256.31

Gross sales - Cost of advertising = $123.69

Seems like we have a $123.69 profit, rght?

Wrong.

Cost of sales = 60 * $6 = $360
Product A ROI = (Gross sales) - (Cost of PPC) - (Cost of sales) = -$236.31

== Product B ==

Total conversions = 50
Gross Sales = 50 * $48.84 = $2,442
Cost of advertising = $2,379.25

Gross Sales - Cost of advertising = $62.75

Without applying the Cost of sales, it would seem like Product A has a better return on our investment and we should continue pushing it.

Once you apply the cost of sales to the formula, you can see the ROI for Product is positive, while Product A is losing money.

Cost of Sales = $20
Product B ROI = (Gross sales) - (Cost of PPC) - (Cost of sales) = $42.75



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In conclusion,

Google's reported Cost-Per-Acquisition is deceiving. Make sure you always focus on ROI, not CPA.

Oh, and if you're an affiliate promoting an offer where they don't allow you to install your conversion-tracker on the "thank you" page, do yourself a favor and skip that offer.
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