Three Methods in Computing for ROI in
Now more than ever, a PPC marketing company is subjected to pressure to produce
results. Online marketers are vicious creatures when it comes to generating ROI and
they want to get the best outcomes from their investment.
While ROI is a pretty ubiquitous marketing term thrown around across several
practices, a search engine marketing agency can still be baffled on how to compete
for it. What formula should be used? What are the parameters? What are the
Essentially, there are three basic ways on how a PPC marketing company can
calculate and present returns on investment for an ad campaign.
ROI Based on Ad Spend
This is also known as Return on Ad Spend or ROAS. Of all the three methods of
calculating for PPC ROI, this is the simplest and easiest to understand. Here’s the
formula: Get the total revenue generated by pay per click advertising, subtract the
PPC cost from that figure and divide the difference by the PPC expenditure. For
instance, if you’re PPC campaign generated $200 worth in sales and the total
advertising spend is $100, the ROAS is 100%.
A number of bid management tools use ROAS and its simplistic nature allows a PPC
marketing company to present projections in a relatively fast turnaround.
Traditional Business Definition of ROI
Compared to ROAS, traditional ROI still uses the same formula of subtracting cost of
revenue and dividing the difference by the cost. What sets this apart is how a search
engine marketing agency should calculate the cost.
A PPC campaign for a hardcore eCommerce site is a good illustration of how this
model works. Aside from the advertising spend, other expenditures also take into
consideration which can include product research and development, order processing
and even the budget allotted for customer support. One thing a PPC marketing
company needs to keep in mind is that advertising expenditure is not only confined to
the cost of the ads per se, but also to other corollary expenses related to an ad
ROI per Click or Impression
Also known as Profit per Click and Profit per Impression. It’s a little more complicated
compared to ROA and the traditional business ROI. However, since it’s more granular
than the two previous ROI models, they offer richer insights which can lead to more
The formula for computing for profit is the same: subtract the total PPC cost from the
total PPC revenue. You just have to agree how to compute for cost – is it just the ad
spend or the ad spend plus the other associated expenses.
To determine the profit per click and profit per impression, a search engine marketing
agency needs to look into analytics data. Since it’s on a keyword and impression level,
you can assess that effectiveness of your ad campaign on a micro level and you can
make the necessary little adjustments moving forward based on what worked and
what did not worked.
Which ROI Model to Use?
To each his own – this is really the most appropriate way to answer this question.
Every PPC campaign has its own goals and dimensions and there’s really no
prescribed way to measure ROI. However, consistency is important. You can’t just
switch from one ROI model to the next as this will give you erratic interpretation of
the performance of your ad campaigns.
Author is working as an Internet Marketing professional in an PPC company NY, New
York. He likes to write informative articles on various topics related to Internet
Marketing. Through this article, he wants to share his knowledge with people who
are about to hire an Internet marketing agency for their businesses.