How to Calculate ROI of Google Ads

Make sure you’re getting the most out of your advertising budget.

ROI Definition

ROI means a Return of Investment in Google Pay Per Click (PPC) strategy. It is a percentage that results after deducting your costs of services from the revenue and dividing the difference by the cost of services once more.

How ROI Works

ROI works by determining the success rate of your paid Google advertisement. It factors in the cost of ads as well as the costs of services which may include staff and other costs. The revenue is the total amount you’ve sold through a particular advertisement campaign or keyword.

If ROI is a negative figure, the paid search didn’t bear any fruits. On the other hand, a positive figure shows there’s some return in paid google advertisement for particular keywords.

Why ROI is valuable

In a medical practice, there’s a thin line between expenses incurred while acquiring a larger client base and the amount brought in by the same clients after a paid advertisement. Clicks and impressions are essential after an ad. However, ROI will determine how many of the clicks translate to your highly valued cause of action such as actual new patients and surgical procedures.

Many businesses blindly put in investment money without checking the returns which leads to an endless cycle of negative returns.

ROI helps in figuring out the type of keywords that bring in more conversions thus allocate more budget in the area and reduce funds from the stagnant keywords which are not bringing in income.

Although the cost for pay per click is currently a dollar, to a business, the dollar should return investment with profit.

How To Calculate

The formula for calculating ROI is ROI= (Revenue-Cost of Services)/Costs of Services. To get the highest returns after investing with Google Ads, you have to determine the most important action after a prospect reaches your website.

In some businesses, when a prospect reaches a landing page to view a video, that is a conversion to them. Others measure conversions with the number of email addresses gathered in the process. For example, a software company can request for an email address to share a demo with their prospects. They can then save the email address in the database to follow-up in the client and send more offer. That makes direct contact a qualified lead.

Others measure their conversions with the number of sign-ups received through the Google advertisement. Whichever your conversion is, it has to be of value and measurable. It has to bring in revenue to the business whether in a long-term or short-term basis.

After identifying the conversion, this becomes your revenue. The cost of services must include the cost of advertising with Google as well as the cost of producing or purchasing services. For example, if you’ve bought five shirts at a total price of $100 and you’ve sold all of them at $50 each after spending $90 in the advertisement campaign, the ROI, in this case, is (250-190)/190 The resulting figure multiplied by 100 becomes your ROI. You can also use free tools such as Google analytics to help in the calculation of your ROI.

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