Return on Investment (ROI) Formula
Calculating Return on Investment (ROI) of Advertisement
Return on Investment (ROI) is a term that you will hear frequently throughout this chapter. It is associated with keyword advertising. PPC advertising is becoming increasingly expensive – you need a way to justify your keyword investments with solid returns and a way to measure the PPC campaign’s effectiveness.
There are a number of formulas for determining the ROI. For my customers, I use straight forward formula:
ROI = [Contribution] / [Cost]
To calculate Contribution for a PPC campaign:
([Your average profit per sale] x [Estimated number of Conversion]) – [PPC Cost]
To demonstrate, let’s take the following example:
Monthly PPC Cost: $1500
Average profit per Sale: 50
Number of Conversions (Sales) per Month: 75
This would make the break down the following:
($50×75) -$1500 = $2,250
So you ROI would be:
$2250 / $1500 = 150%
The services provided by PPC management firms can cost you anywhere from about $500 per month for basic services to as much as a 250,000 flat fee for a complete campaign-management packages over a specified amount of time. The question is whether it’s worth it for you to pay this fee to free up your time and get the right expertise involved.
For a successful campaign, the answer is most likely “yes” A PPC management firm might be just what you need to help reduce the burden of managing single or multiple PPC campaign and doing the job right.
Just make sure you know what you’re getting into before you sign a contract.
Since there is no contract yet, let’s look at how to start you own campaign with Google AdWords and Microsoft adCentre in the next few sections.
The funny about this section is that it went through major changes in 2009 and virtually every new SEO book I picked up, even the ones for 2010 have the old AdWords screens in their books and giving all the wrong information.
Oh, and another thing that people sometimes get confused about. Many people mistakenly believe that PPC and paid-inclusion (PI) services are the same type of marketing, but there are major differences. For starters, paid inclusion services are used by some search engines to enable website owners to pay a one-year subscription fee to ensure that their site is indexed with that search engine at all times.
This fee doesn’t guarantee any specific rank in search engine results; it only guarantees that the site is indexed by the search engine. PPC costs money when a searching user clicks on a link advertised in the sponsored listings of a page. You pay each time a user clicks on the link to your site or landing page.