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Return on investment Internet Marketing

Return on investment Internet Marketing
Return on investment for internet marketing

When you use AdWords to increase conversions such as sales, leads, and downloads, it’s a good idea to measure your return on investment (ROI). Knowing your ROI, you’ll be sure that the money you’re spending on AdWords advertising is going to a good cause: healthy profits for your business!
What’s ROI?

ROI is the ratio of your profits to your costs, and the exact method you use to calculate it depends upon the goals of your campaign. For example, an investment of $1000, which leads to revenue of $1200, gives you a profit of $200. You can then calculate your ROI as (1200-1000)/1000), or 20%. It’s typically the most important measurement for an advertiser because it’s based on your specific advertising goals and shows the real effect your advertising efforts have on your business.
Why ROI matters

By calculating your ROI, you’ll learn how much money you’ve made by advertising with AdWords. You can use ROI to help you decide how to spend your budget. For example, if you find that a certain campaign is generating a higher ROI than others, you can apply more of your budget to the successful campaign, and less to the ones that aren’t performing as well. You can also use the information to try improve the performance of the less successful campaigns.

Return on investment Internet Marketing
AdWords essential
ROI: focus on profits by measuring your “return on investment”
Watch this video
Advertiser Education: What is Return on Investment?
Learn how to calculate ROI for your account.
Using conversions to measure ROI

To identify your ROI, you first need to measure conversions, which are customer actions that you believe are valuable, such as purchases, sign-ups, web page visits, or leads. Conversion Tracking is a free tool that helps you track how many clicks lead to conversions. You can use Conversion Tracking to determine the profitability of a keyword or ad, and track conversion rates and cost-per-conversions.

Many AdWords advertisers use Google Analytics for conversion tracking. It’s a free web analytics tool that helps you learn how your customers interact with your website. Learn more about the differences between Analytics and Conversion Tracking.

Once you’ve started to measure conversions, you can begin to evaluate your ROI. The value of each conversion should be greater than the amount you spent to get the conversion. For example, if you spend $10 on clicks to get a sale, and receive $15 for that sale, you’ve made money ($5) and received a good return on your AdWords investment.
Calculating your ROI for sales

Determining your AdWords ROI can be a very straightforward process if your business goal is web-based sales. You’ll already have the advertising costs for a specific time period for your AdWords account in the statistics from your Campaigns tab. The net profit for your business can then be calculated based on your company’s revenue from sales made via your AdWords advertising, minus the cost of your advertising. Divide your net profit by the advertising costs to get your AdWords ROI for that time period.

Here’s an example:
$1300 – $1000 = $300 ROI = 300 / 1000 = 30%
You sold $1300 worth of products (measured by conversions) You spent $1000 on AdWords (measured by your AdWords costs) Net profit of $300 Your ratio of profit to cost is 30% — this is your ROI.
Calculating your ROI for page views, leads, and more

Sometimes your ROI may require a different formula. For example, if you’re interested in calculating the ROI for a page view or lead, you’ll have to estimate the values of each of these actions.

A Yellow Pages ad for your business may cost US$1000 per year and result in 100 leads. Ten of those leads become customers, and each customer provides an average revenue of US$120. The value of each lead is US$12 (US$1200 revenue/100 leads), and your ROI for the Yellow Pages ad is 20% (US$1200 revenue minus US$1000 spent)/US$1000 advertising cost) x 100.

Here’s the formula used in this example: (Revenue – Costs)/Costs) x 100 = ROI %

A simple alternative to estimating values for your leads and page views is to use a cost-per-acquisition (CPA) measurement. Acquisitions are the same thing as conversions: they’re actions your customers take that you think are valuable, such as completing a purchase or signing up to receive more information.

Using this method allows you to focus primarily on how your advertising costs compare to the number of acquisitions those costs deliver. Using the Yellow Pages example again, your ad may cost US$1000, resulting in 10 sales. So your CPA for that ad is US$100. Here’s the formula for CPA:

(Costs/Sales) = CPA

Your CPA shouldn’t exceed the profit you made from each acquisition. For your Yellow Pages ad, the CPA is 20% less than the revenue the acquisitions provide.

For more information on calculating your online ROI or a free consultation!
contact Troy Tanga

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