Companies are using paid advertising to gain quick traffic, sales, and profit in the market. PPC advertising enables companies to increase the conversion rate. But, it is important to track ROI to find out the profit from advertising. Otherwise, it will be like shooting an arrow in the dark without knowing the target. This is an important marketing strategy for good business.
An Introduction to ROI
Return on investment (ROI) is the net profit gain by the company to the costs required. This is essential as it shows the real effect of advertising strategies on your business performance. Here is the exact method of calculating the ROI.
ROI = (Revenue – Cost of Product Sold/Cost of Product Sold)
For example, a company’s product requires $100 dollar to manufacture and sells each for $200. It sold 6 pieces of a product after advertising in the Google AdWords. The total revenue will be $1200 and the advertising cost is $200. The company’s ROI will be ($1200-($600+$200)/ ($600+200), 50%.
Why ROI is essential for Companies?
ROI is an important indicator of a campaign’s performance after launching in the market. By calculating the ROI properly, a company comes to know about the profit made to the cost of advertising required in the campaign. One can determine which campaign is bringing good profit or which don’t. The campaign giving higher return can be continued and special modification can be done on the failed campaign.
How to use conversion to measure ROI?
Conversions are the valuable customer’s action like buying, sign up, webpage visit and leads. Companies can track how many clicks are leading to conversion in their websites. This is helpful in determining the profitability of keywords or Ads or conversion rate.
The ROI can be easily calculated after measuring the conversion rate. Profit is made if the value of the conversion is greater than the amount spent to get the conversion. For example, if you spend $10 to get a click and get $15 from the sale, your profit is $5.
How to calculate ROI from sales?
To determine the ROI of sales, you need three things. The first is the revenue made from advertising and second is the cost required in producing the product. Third thing required is the cost of AdWords cost for setting the campaign or given to host.
ROI on sales = (Total revenue– Total cost of goods/ Advertising cost) 100%.
Calculating ROI on leads, page views, and others
A company can calculate the ROI on leads, page views, and other by monitoring properly. Every action of a customer is calculated to find out the exact value or the success of the company’s strategy. One can also calculate the ROI through cost per acquisition method. Acquisitions are the valuable action of the customers in the website like purchasing product, sign up for more information, etc. Using this method, one can determine the advertising cost the number of acquisitions those costs can deliver. Cost per Acquisition (CPA) =Cost/Sales
ROI = (Total revenue – Total Cost)/Advertising cost x 100%.
The PPC is the quickest way of earning lots of money from the companies in online marketing if done according to marketing standard. But, PPC can cause lots of money if experts help aren’t taken to set campaign, monitor, and maintain the Ads.