Pay-per-click (PPC) advertising can provide a substantial return on investment (ROI) if you devote the time and effort to crafting detailed and impactful text ads and calculating your success over time. PPC ads can be expensive, but, if they provide an acceptable ROI, they are well worth the investment. It’s essential for modern businesses looking to expand their digital reach to know how to calculate ROI with their PPC ads to inform their paid advertising strategies for the future.
What Is PPC?
PPC advertising is a fairly straightforward concept with very complex implications in practice. Essentially, an advertiser develops a text ad for display on Google, Bing, or other search engines, and the advertiser pays a predetermined price to the search engine every time a search engine user clicks on the ad. PPC advertisers bid on different keywords, and many different competitors within a single niche market will probably aim for the same or similar keywords.
When the search engine detects a search for a keyword with bids from advertisers, the search engine algorithm then determines how to rank their PPC ads based on several factors:
- Bid amount. High bidders are more likely to rank higher in the displayed list of ads. However, paying more per ad is not a foolproof method for guaranteeing appearance in search results.
- Page quality. High bids aren’t a guarantee that those ads will appear at the top of a list of PPC ads for a particular keyword. If one page is of significantly higher quality than another, it may rank above the other even with a slightly lower bid.
- Google and other search engines use countless different metrics to track how relevant different pages are and displays them accordingly when a user searches for a particular keyword or keyword string. The more closely related a PPC ad is to the user’s search query, the more likely that PPC ad is to appear toward the top of the displayed ads in the search results.
With a firm understanding of the basics of PPC advertising, marketers can then determine the ROI of their PPC ads with some basic calculations. However, determining the exact value of a PPC campaign requires long-term analysis and keen understanding of the different variables that come into play over time.
Calculating PPC Marketing ROI
PPC ads require consistent effort and attention. Advertisers must configure their ads carefully and then bid upon their corresponding keywords. Ideally, the keywords with the highest chances of conversion should carry the largest bids, but marketers will need to adjust them over time. Managed PPC advertising services can help maintain the long-term efficacy of a PPC ad campaign.
Calculating the basic return on ad spend is relatively straightforward. Here’s a good way to begin calculating the overall ROI of a PPC ad campaign:
- First, calculate the overall ad spend for a PPC campaign. For example, assume you spend $10,000 on PPC ads.
- Next, determine the conversion value of those ads. Following the previous example, imagine if the $10,000 in PPC ad spend resulted in 500 leads, and 250 of those leads converted for an average of $100 each.
- Finally, divide the conversion value by the overall ad spend.
Following the previous examples, this would appear as (250x $100)/$10,000, or $250,000/$10,000 for a return on ad spend of 2500%. This is an idealized example and most advertisers will see much more modest returns, but it’s easy to see how PPC ads can generate tremendous value for any brand.
In the previous example, the PPC ad campaign generated 500 leads but only 250 converted. This does not mean the other 250 are wasted potential. PPC ads can generate more brand awareness, increase conversations around your brand, and gradually convert warm leads to direct sales eventually.
Additional Values to Track
The basic PPC ROI calculation provides a great benchmark to track over time. Marketers will need to include other variables in their calculations such as manpower spent on chasing down leads and closing sales and total revenue to determine the exact value of every PPC click. Eventually, this data can help determine the average cost of conversion for a brand’s customer, or the overall investment required to convince the customer to finally convert to the brand.
It’s also necessary to track ad spending over time. For example, if your brand sells seasonal products, you want to arrange your highest bids on your winter-oriented products during the winter and then adjust accordingly for the change in seasons. Similarly, if certain products seem to only sell during specific times, it may be wise to ramp up the bid amounts on the PPC ads for those products in a timely manner to capitalize on the likely increased traffic during those times.
PPC ad campaigns are fantastic marketing assets as long as the marketing teams behind them are willing to put consistent effort into refining them, testing new ad structures, and adjusting their PPC ad settings in response to changing trends.