AdWords ROI - the
Google AdWords advertisers often focus on their Return on
Investment. They like to spend £x and make £5x profit or
But to focus on ROI is to miss a fundamental point about pay
per click advertising: profitable advertising is profitable
advertising. ROI is the wrong Key Performance Indicator.
The easiest way to see this is to work through an
Calculating AdWords ROI
Suppose each sale makes you £10 in profit and that you need
10 visitors to your site on average to make one sale. Suppose
too that you are buying traffic for 10p a visitor.
It is costing you £1 per sale (10 visitors) and you are
getting a return on investment of 1000% because for each £1 you
spend you are making £10 in profit.
That's a good ROI.
But suppose that you could double your traffic by doubling
the amount you pay for each click and moving your ad up
Your cost per sale has shot up to £2 because clicks cost
twice as much and you still need 10 of them on average to make
a sale. So your profit per sale has reduced to £9.
But your AdWords ROI has been slashed to 450%. Disaster!
Except it's not. Let's look at the profitability.
Where we were getting £10 in profit we are now getting 2 x
£9 in profit. So we are making £18 instead of £10.
Our ROI is worse but the profit has jumped by 80%.