Do you want to improve your paid search campaigns? You got to be comfortable and understand the paid search metrics to make a right decision. Sounds scary, but I will guide you step-by-step and show on the real example that it’s not. One of the advantages of reading this article – you will be able to see the big picture of all process before you make a right decision.
Do you want the step-by-step instructions?
Let’s jump right into.
There are a lot of paid search metrics. Do you know how to use them to make the right decision about your marketing activities? Which campaign bringing you decent revenue and which one is not?
One of the main points behind online advertising is to drive sales for your business. Clicks are good, Leads or Conversions are nice, but a lead is not a sale. You may have pretty good CTR (click through rate), CPC (cost per click), CR (conversion rate), but your SR (sales rate – actual percentage of real customers) is still low and CPL (cost per lead), CPA (cost per acquisition) or CPS (cost per sale) is hight. Where is the problem in this case? How to make a decision of which campaigns eliminate and which ones continue running?
Track Your Conversion and Sale
Fortunately, most paid search platforms make it pretty easy to track conversions and sales. For example, if you’re running an e-commerce company, you can easily assign a conversion value to transactions and directly view the value a particular campaign element produces in AdWords.
If you don’t know which campaigns, ad groups, ads, and keywords are producing which conversions and sales, you can’t exactly calculate and use your ROAS (return on ad spend).
This is where ROAS comes into play. One of the best things about paid search advertising is the ability to connect what you spend on a campaign, ad or keyword to how much new revenue is generated. With a little extra effort, you can connect all the dots and use ROAS to identify which aspect of your paid search advertising deserves more of your budget and which needs work.
Using metrics like click or conversion data to guide your marketing isn’t a bad thing, but without ROAS data, you can end up making decisions that improve your metrics and hurt profitability.
First: Track Your Clicks Metrics – CTR and CPC
The game is starting from generating targeted traffic to your Sales Funnel. Without quality traffic, you are not going to be able to move forward. PPC is one of the best ways to generate this traffic.
Let’s imagine that you sell Battery Cases for iPhone 8. Your Battery Case sells price is $46 and has a 50 percent profit margin. In an effort to boost sales, you’ve been running four paid search campaigns that have yielded the following results:
Campaign #3 has the highest click-through rate and the cheapest cost per click. Are we ready to pick a campaign to keep investing in based on this metrics?
The answer is NO!!!
While campaign #3 drives the most clicks at the lowest cost, we really don’t know much about the quality of those clicks. In other words, we do not see how many real buyers we got. Clicks are not Sales. Maybe it is driving a lot of traffic because you are bidding on the broad match keyword “battery cases”. In this case, you could be getting all sorts of irrelevant clicks. But CTR and CPC metrics will help us to understand the behavior of our audience and optimize better the Campaigns.
Second: Track Your Conversions
To evaluate our traffic, let’s take a look at how those clicks are converting:
As you can see, campaign #1 has a higher conversion rate (CR)and lowest CPL, even if it has a relatively poor CTR and high CPC. However, campaign #3 also drives so many cheap clicks that it still has the lowest cost per lead (CPL) of the group by a considerable margin.
Using this data, it looks like campaign #1 is worth the investment. Sure, it could probably use a little optimization, but it clearly outperforms the rest of your campaigns.
Or maybe NOT?
Leads are nice, but a lead is not a sale. Conversion data only tells us how good a campaign is at getting people into our funnel; it doesn’t tell us anything about how well a campaign produces new revenue.
To make a decision and answer the “is this campaign profitable?” question we need to go deeper and take a look on ROAST.
Third: Track your ROAS
Now, which campaign would you invest in?
I would eliminate campaign #3 and #4 as soon as possible. With our 50 percent profit margin, every sale from Campaign 3 and 4 actually costs us money. Look it up:
ROAS = Revenue / Cost
We get break-even if ROAS = 200% (or 2x return on ad spend with our 50% profit margin). In Campaign 3 revenue is $552.00, where 50% profit margin is $276.00. But at this moment we spent $301.70. Lost = $25.70
In contrast, Campaign 1 is incredibly profitable. Sure, it had a lousy click, but when it comes to profit, it’s the obvious choice. 4x ROAS is where you are making money.
Shoot for a 4x ROAS with most paid search campaigns and campaign elements.
Any campaign element with a ROAS of less than 3x probably needs work. How important it is to work on any given element will depend on how much it’s costing you, but in most situations, you need at least a 2x ROAS to break even.
Paid search marketing is usually expensive, low-funnel marketing, so if your overall ROAS isn’t at least 4x, your marketing is probably on life support.
ROAS is often seen as an e-commerce metric, but in reality, it’s one of the most valuable and yet least-used paid search metrics out there. Yes, it does take a little extra work to get tracking set up, but the information is worth it.
Once you have ROAS tracking set up, you actually have to use it to improve your campaigns. The trick here is knowing what ROAS data tell you about the end performance of your campaign elements and how to use that information to identify elements that need to be improved. Fortunately, after reading through this article, you should have a good sense of how to interpret and use your ROAS data.
Your specific goals may vary, but by using ROAS to guide your campaign decisions, you’ll be making decisions that affect what matters most — making money!
Have you ever asked yourself this question: When it comes to online marketing, why do some people succeed while others are left spinning their wheels?
While you may be great in sales, your website isn’t. Despite the fact that website looks really good, rarely does it bring in any leads or actual sales.
Over the years I’ve noticed a pattern: successful marketers use a very specific system to achieve nearly exponential growth. And it is the Online Sales Funnel (a.k.a. lead generation funnel, relationship funnel, customer value optimization funnel or marketing funnel).
We work in areas as diverse as Inbound Marketing, Affiliate Marketing, Search Engine Optimization, Social Media Marketing, Email Marketing, Pay-Per-Click Marketing, Content Marketing, Marketing Automation, SEO friendly Web Design.
About us and this blog
We are a digital marketing company with a focus on helping our customers achieve great results across several key areas.