PPC Toolbox Series: PPC ROI Calculator
PPC Toolbox is a series of posts that highlight and explain the PPC tools that we are developing here at KoMarketing Associates to facilitate pay-per-click campaigns.
PPC ROI Calculators
There are three magic letters that will make or break any PPC campaign: ROI. KoMarketing currently provides a very useful excel spreadsheet template that can be used to measure ROI for search engine advertising campaigns, found in the resources section of the website. The sheet calculates helpful information like percent profit, profit per click, and acceptable cost per action. The spreadsheet format is ideal for anyone looking to track this data over a period of time, or create multiple scenarios. But sometimes you just want to do a quick check to see if something is working, or to show a manager or client some potential figures.
We developed the PPC Calculator Gadget to do quick ROI calculations quickly and easily.
Using Google Gadgets, we created a PPC Calculator that can be used as an easy way to get ROI data fast. We have created two different gadgets – one for B2C (i.e. e-commerce) and one for B2B (i.e. lead generation and sales tracking).
You can access each Gadget in these locations:
How It Works
The tool is fairly straight forward – there are Input data points and Output data that is returned:
Inputs
You can input data from your campaign reports into the boxes on the calculator, or use estimated numbers for scenario testing. The following are the Inputs for the B2C Calculator:
- Impressions
- Click Through Rate
- Conversion Rate
- Avg. CPC
- Average Sale
- COGS (Cost of Goods Sold)
- Operating Overhead %
Outputs
The calculator will then take this information and return back some basic data:
- Clicks
- Conversions
- Revenue
- Cost of Goods Sold
- Operating Expense
- Advertising Cost
In addition to these output calculations, some of which are already included in many paid search reports, the calculator will provide the following ROI data:
- Profit After Advertising – Net profit from advertising after related expenses.
- % Profit – How much profit is made from each sale.
- Profit/click – How much profit is made from each click.
- Target/Acceptable Cost Per Action – The maximum CPA you can afford without losing money on the campaign.
The B2B calculator works in the same manner. However, there are Input fields to accommodate the concept of lead generation and sales tracking:
- % Qualified Leads – As an input, enter the percentage of “Leads” that come into the website become Qualified Leads.
- % Conversion Rate (Qualified Lead to Sale) – Enter the percentage of Qualified Leads that convert into a Sale.
Tips for Using the Calculators
These PPC Calculators are perhaps most useful when you use them to test out assumptions and create multiple test scenarios.
Find your Target Cost Per Click – Plug in variables that seem as reasonable as possible (or perhaps as conservative as possible) and then examine what you can afford to pay. Play with input variables until you arrive at both a break-even point and a point of acceptable profit.
Maximize Conversion Rate – Adjust your input value in the Conversion Rate field to examine the impact of improving the effectiveness of your landing pages in increasing profitability. In most PPC campaigns, you will find over time that the Conversion Rate is your biggest leverage point in maximizing the profitability of your program.
Imagine Individual Keywords – You can use the PPC calculator tools to analyze the profitability of an entire program, one single search engine, an individual campaign, a single ad group, or an individual keyword. The tools are very effective when you input data for a single keyword and develop profitability scenarios for that keyword.
Consider Lifetime Value – When inputting data for average sale/transaction value, consider using the average customer’s lifetime value, and not just the immediate value of a single transaction. Search engine advertising campaigns often do not produce profitable results until a customer’s repeat purchase (especially in a very competitive bid environment).
The Power of a Google Gadget
The reason we decided to create this tool using Google Gadgets is because it makes the tool easier to share. Rather than coming to our site every time you need to get a quick calculation, you can embed the code onto your own site. Because the calculators are “portable”, you can share the functionality with your customers, clients, executives, or your internal PPC team.
Another reason for creating a gadget is that there is more opportunity for the gadget to be found, and used, by others since it is listed in the Google Gadget directory. If your gadget is well-branded you will reap the benefits of that as well.