August 8, 2013

How to calculate your return from your AdWords campaign

For new businesses, there aren’t many tools out there more effective in getting potential customers quicker than a Pay Per Click (PPC) advertising platform such as Google AdWords or Bing Ads.

A common oversight we find with clients who are start-ups or new to AdWords is that they don’t determine the potential return on investment they can expect from a PPC campaign and in fact, if PPC is even the most cost-effective way to grow their business (with PPC costs going up all the time,  it’s not uncommon for other advertising channels such as Search Engine Optimisation (SEO) or Social Media to be more effective for certain types of businesses).

So, here’s a simple spread sheet that we use internally as well as for clients which can help get at least an overview on what sort of return you can expect.

ppc profit calculator

Lets look at it in more detail:

Budget

It all starts with the budget. Once you have clearly set your budget you can start breaking down the various metrics of the PPC campaign all of which will play a part in how much return you can get.

Cost Per Click (CPC)

Before you begin, get an idea of how much the CPC rates are for the keywords you are going to run your ads against. Google keyword tool allows you to do this or you can use an external tool such as Wordstream.

Keyword cost data, even that provided by Google isn’t 100% accurate so we always advise increasing the estimated CPC by 10% to be on the safe side.

Clicks

Once you have your budget in place and the CPC,  getting the number of clicks is easy (budget / CPC).

Lead conversion rate

This is where the fun begins! You want to be able to forecast how many leads or enquiries you could get from your PPC campaign and the best way to do this is looking at your historical website data. If your website is new or you have never tracked conversion rates before,  then we suggest assuming a conversion rate between 2-3%, the average conversion rate of most websites.

It’s easily possible that you experience or have much higher conversion rates and this is especially true if your website is well laid out, easy to use and you offer something niche. If you have these facts beforehand, then by all means, increase your conversion rate to a more real value. However, for those who don’t have this info, a 2-3% conversion rate is safe to assume, we find.

Enquiries

So, now you have your conversion rate and the no of clicks. Divide the number of clicks with the conversion rate and what you have is the approx.. no. of enquires you can expect to get via your campaign.

Sales conversion rate

This is going to be more challenging to get right if you don’t have this data from before. Basically, you want to be able to determine what percentage of those enquiries you think will convert into sales.  There’s no data available for this as this will vary quite a bit depending on various internal factors such as , how competitive your pricing is perceived to be (especially if you don’t display this on your website and is only available to view upon request), how persuasive your sales pitch is to the lead, how efficiently your sales queries are handled and so on…

If you have absolutely no idea, a safe number to assume might be anywhere between 20 – 30%. i.e 1 out of 5 (20%) enquiries will turn into a sale.

Sales & Average order value.

Once you have the sales conversion rate, you’ll be able to determine the no. of sales. You will have an  idea of your average order value and when you multiply this with the sales, you get the sales figure from your PPC campaign.

Costs

Along with taking into account the cost of producing the goods or service, you want to also minus your ad spend for that time period and what you’ll be left with is the net profit from your PPC activity.

We hope you find this useful. Feel free to ask a question or drop us a comment if we can help further.