Google AdWords Detailed Process – Part 2

II. Measuring Conversions

To measure your results, you’ll need to make sure that you’re measuring conversions. Once you set up conversion tracking, here are some of the important statistics that can help you measure whether your campaign is successful:

A. Conversions:

The total number of all conversions made within your chosen conversion window after an Google Adwords click. It is the metric most advertisers use and is one of the important ways to track the success of your ads. It gives you the full picture of how many conversions Google AdWords drives for your business. You can also customize this according to your business goals. You can choose to count "every" or "one" conversion following an ad click for each conversion action. This allows you to count conversions based on how they bring value to your business. Or, you can choose to exclude some of your conversion actions from any automated bid strategies you might have set up.

B. Converted Clicks:

The tally of every Google AdWords click that resulted in one or more conversions within your chosen conversion window. A conversion happens when someone clicks your ad and then takes an action that you’ve defined as valuable to your business, such as an online purchase or a call to your business from a mobile phone. Conversions help you understand how much value your online ads bring to your business. In reporting terms, the change means the Conversions (One-Per-Click) will be replaced with "Converted Clicks," and Conversions (Many-Per-Click) will be replaced by "Conversions."Advertisers can think of the newly named columns this way:

Converted Clicks = Unique Customers.

This is "the number of clicks that convert within your chosen conversion window (typically 30 days)". So, if a customer makes two separate purchases after clicking on an ad, they will register as one Converted Click.

C. Conversion Rate:

Conversion Rate is probably the most significant metric for your business because everything else is just numbered unless you can convert ad-clicks into revenue. It is very similar to CTR. Instead of ad impressions and clicks, it focuses on how many clicks lead to conversions. CR is used to evaluate the utility of incoming PPC traffic. How many of these users that click the add will go on to complete a purchase? This avoids the pitfall of CTR in that you ultimately measure which ad brings in the highest percentage of qualified traffic. The more you turn clicks into leads, and leads into satisfied customers, the higher your conversion rate will be.

It is a great marketing performance metric for really drilling down to how your terms and ads are performing for you. You may have a great CTR, but if you aren’t converting any of those clicks, the conversion rate will help tell you that and you’ll know it’s time to optimize. Conversion rate also lets you look at the rate trend (vs. just absolute conversion number trend) which can help you compare to conversion rates from other advertising avenues – comparing to other Adwords metrics is vital in understanding how well your ppc campaigns are performing outside of just your Google Adwords silo.

D. Total Conversion Value:

Total conversion value is the sum of all conversion values for all conversions. Make sure you are assigning a value to your conversions so you know the exact return you are seeing. This value should be assigned directly in your conversion tracking code. Though you can see conversion value through your analytics, it will be preferable to view cost and conversion value, and ultimately return on ad spend, directly within one place, the Google AdWords interface. To see the above statistics and other conversion data, you can add conversion-related columns to any of the statistics tables in your account.

III. Measuring Return On Investment (ROI)

Whether you’re using Google AdWords to increase conversions such as sales, leads, downloads, you’ll want to measure your return on investment (ROI).

A. ROI:

The ratio of your net profit to your costs. Why calculate your ROI?

You’ll learn how much money you’ve made by advertising with Google AdWords and can use that information to help you decide how to spend your budget. For example, if a certain campaign is generating a higher ROI compared to others, you can apply more of your budget to the successful campaign and less on the ones that aren’t performing as well.

Calculate your ROI

The exact method you use to calculate your ROI depends on your goals, but here’s one way to define it:

ROI = (Revenue – Cost of goods sold) / Cost of goods sold

B. Conversions:

Once you’ve started to measure conversions, customer actions that you believe are valuable, you can evaluate your ROI. You can use conversion tracking or Google Analytics to determine the profitability of a keyword or ad, and track conversion rates and cost-per-conversion. Keep in mind that the value of each conversion should be greater than the amount you spend to get that conversion.

C. Sales:

If your business is web-based sales, you’ll need the revenue made from Google AdWords advertising (this is the conversion value that you set), costs related to your products sold, and your Google AdWords costs. You’ll want to calculate your net profit by subtracting your overall costs from your Google AdWords revenue for a given time period. Then divide your net profit by your overall costs to get your ROI for that time period. Here’s the formula:

Ratio to profit of overall costs = Revenue (measured by conversions) – overall costs/overall costs

D. Page Views, Leads, and more:

If you’re interested in calculating the ROI for a page view, lead, or other goal, you’ll use a different formula. First, you’ll want to estimate the value of the action that you’d like to measure. To calculate your ROI, you’ll subtract your overall costs from your overall revenue. Then divide your net profit by your overall advertising costs. Here’s the formula:

Advertising ROI % = (Total revenue – Total cost)/Advertising costs x 100

E. Cost

Are You aware of Where Your Money is Going?

Once your account is up and running (i.e. ads are showing and searchers are clicking), you’ll want to look at how well your account is performing based on the most important metric: MONEY.

A huge aspect of interpreting your Google AdWords data is determining whether or not you are taking advantage of your advertising dollars and not wasting money. You can’t expect high profits if you have high costs, so you’ll want to make sure you’re reducing the wastage throughout your account.

F. Cost Per Click (CPC) and Cost Per Acquisition (CPA):

Cost per click is the amount you pay for each click. This is important because it ultimately determines the financial success of your ppc campaigns. While cost per acquisition focuses more on how much your business pays in order to attain a conversion. Looking at both Adwords metrics will help you answer the questions as to whether or not you are making money in your account. Generally, your CPA will be higher than your CPC because not everyone who clicks your ad will go on to complete your desired action (or in other words, convert).

It’s always a good feeling knowing that people are interested in your ads and are showing that interest by clicking, but if each click is costing you more than you would pay for a fancy dinner, it’s probably not going to feel too great at the end of the day. Your return on investment (ROI) will be determined by how much you are paying for clicks, and by what kind of quality you are getting for that investment. It’s important to monitor your CPC so that you can determine if you are under- or overpaying for clicks. And it’s equally important to monitor CPA because it determines whether or not your conversions are being driven at a cost that is profitable.

CPC, of course, varies depending on the competitiveness of the industry among other things, but you still need to take into consideration whether or not you can still make money after you pay for the cost of your clicks. That’s where CPA comes into play; if you’re paying more for that potential customer than you can make off of them, then essentially you are paying for that person to be your customer. Lowering CPC can require some strategy as you want to maintain value while lowering the price you’re paying for each click.

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