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How to calculate PPC ROI

PPC ROI Calculation

No matter you are employing Pay Per Click (PPC) for the first time or have been old in this game, calculating return on investment (ROI) is crucial to better functionality and campaign optimization.  Some people work on cost per conversion only, quickly calculating it in mind and going ahead with next campaign initiation. The strategy has worked for many people, yet it is best to do a bit more homework, for better results. There are three basic components on which return on investment should be calculated.

  • Conversion Ratio (CR)
  • Average Sales
  • Cost Per Click (CPC)

It should be kept in mind that conversion ratio and average sales are directly proportional ROI, which when increased lead to increase of ROI. The cost per click has inverse relationship with ROI, as if the cost per click increases, the ROI decreases.

Formula of ROI

(Profit – Cost)/ Cost

Return On Investment In PPC- Real Term

The ROI can be calculated by being very clear about what will be included in cost and way to calculate profit. PPC click cost is not limited to PPC campaign only, rather it includes all the cost associated in making and delivering the product or service. It should include the salaries of customer support representatives, employees involved in cold calling and fixed cost of running the website with the aid of technical staff, servers and equipments.
Even before starting the PPC campaign you should be clear about the way to maximize profit within best cost. Here multiple technical factors including right keyword and setting right budget within the right time frame. Profit can be calculated in two ways:

  • Profit Per Impression
  • Profit Per Click

Depending on your product/ service, you need to decide in what terms will you be working in PPC campaign.

The Easy ROI Calculation

Many advertiser use return on ad spend (ROAS) to calculate the return on investment. Though calculation lack depth, but it s a good way to start with PPC calculation and bid management.

The formula is as follows:
(PPC Revenue – PPC Cost) / PPC Cost
There are a number of tools available online that can aid you in managing ROI in the best way, by telling you the CPC benchmark in your industry. The CR should be at least 1% while for lead generation 3-5% is better.

Hence the basics of calculations remain same, but you should explore new ways to optimize your PPC campaign.

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1 Comment on "How to calculate PPC ROI"

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Adam
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Hi.. Article is useful but need some graphical represenation to understand PPC ROI in easier way…anyhow i love to work on PPC strategy due to quick results..

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