PPC ROI Calculator: Forecasting Paid Search
24th August 2020
What is ROI in PPC?
With almost any form of marketing, a marketing spend is given on the proviso that there will be a desired level of return, and PPC marketing is no different. Whether an ecommerce or lead-gen focused business, your marketing will need to directly generate or help contribute to providing sales or enquiries.
Being digital, one of the main draws of pay per click marketing and why it’s such a popular marketing channel is how measurable it is. However, it’s essential that both conversion tracking and attribution modelling are perfect. With the correct tracking and attribution set up, marketers can directly measure spend versus return and make informed business decisions along the way. This allows for optimisations and improved performance based on the actioning of accurate, timely information on Return on Investment (ROI) figures.
How To Forecast PPC ROI
Before embarking on any paid marketing or advertising, it’s first important to forecast. Forecasting helps other stakeholders in the business to understand what you are doing and why you are doing it. It helps you to justify any required spend by illustrating an expected level of return from your initial outlay. Effective forecasts can be very helpful when seeking investment internally and externally for a business’s marketing activity.
If you’re looking to calculate the ROI of your digital marketing or PPC campaigns, you need look no further than our PPC ROI Calculator. Our interactive forecasting tool will enable you to calculate the paid advertising spend required to achieve your digital marketing goals while also hitting your return on investment targets. Simply input your business type, industry and marketing goals to build your bespoke PPC ROI forecast.
How to calculate PPC ROI
If you are looking for a PPC ROI formula, at its most basic level it is merely:
Sales or Lead Revenue / Marketing Spend = Return on Investment
In some respects, the concept of paying “per click” or “per view” is becoming outdated as newer, more focused ROI-based marketing targeting and bidding options are introduced. Many digital marketing channels now leverage the big data available to them, to create algorithms and targeting which facilitate alternative ways of advertising and paying.
How to measure ROI in PPC marketing
In Pay Per Click marketing platforms such as Google Ads, there are now several smart bidding strategies designed to focus on ROI. These bidding strategies provide a more goal-orientated form of paid digital advertising. This allows marketers to have a clearer view on overall performance from an ROI perspective, at every step of the way. See the ROI based bidding and targeting models below:
Target ROAS (Return On Ad Spend)
Google describes this as:
“Your target ROAS is the average conversion value you'd like to get for every pound you spend on ads. Enter a value as a percentage using this formula: conversion value ÷ ad spend x 100% = target ROAS percentage. For example, if your goal is to get an average of £5 in sales for every £1 you spend on ads, your target ROAS would be 500%. Google Ads sets bids to try to achieve an average return on ad spend (ROAS) across all campaigns using this strategy.”
Target CPA (Cost Per Action)
Google describes this as:
"Target CPA sets bids to help get as many conversions as possible at or below the target cost per action (CPA) you set. Using historical information about your campaign and evaluating the contextual signals present at auction-time, Target CPA bidding automatically finds an optimal bid for your ad each time it's eligible to appear.
For example, if you choose a target CPA of £10, Google Ads will automatically set your bids to try to get you as many conversions at £10 on average. To help improve your performance in every ad auction, this strategy adjusts bids using real-time signals like device, browser, location, time of day, remarketing list and more.”
At SilverDisc, we also like to use the metric known as “Cost of Advertising”. The reason we like to use this metric is that it is directly comparable to margins. For example, if you know in a given category that average margins are 20%, and your Cost of Advertising is 10%, you know that you're making money in that category. The formula for “Cost of Advertising” is:
Ad Spend / Revenue
The most important thing is that you choose a bidding strategy and reporting method most appropriate to your business and what it sells, and ensure it’s aligned with your business goals. Find out more about smart bidding.
If you’re using a smart bidding strategy, it’s essential you understand the importance of “Conversion Lag” or “Pipeline Conversions”. Google defines Conversion Lag as “the delay between when people click an ad and when they perform a specific conversion action (for example: install, purchase, add to basket, etc.)”.
Because of this, it is vital you understand the part conversion lag plays in your PPC account and when it is appropriate to measure and report on ROI. Smart bidding models such as ROAS and CPA can look deflated and inflated respectively, because Google Ads reports conversions by click dates.
Example: your conversion window is typically set up to record conversions up to 30 days following a click. You may find someone converts into a sale 20 days after their initial click. If you are reviewing performance after a week, you will see ad spend and no return, therefore your ROI metrics will be reporting poor performance. This in fact is not the case and if reviewed properly, taking into account the full conversion window, your ROI reporting will show much improved performance.
What is a good PPC ROI?
There is no correct answer to this question. Each business will have its own operating costs associated with manufacturing, fulfilment, staff costs and selling of their goods or services. These costs will ultimately shape the return on investment requirements from a business’s marketing activity. This will vary extensively from sector to sector and whether the business is lead-gen or ecommerce.
All in all, forecasting the return on investment of your paid search marketing is a key activity before getting started and spending. Forecasting can help with budgeting, setting realistic targets, getting buy-in from stakeholders and investors, and it can also determine whether paid search is a viable route to help meet your business targets.
Don’t forget you can use our PPC ROI Calculator to help you forecast your paid search activity. We’ll even email you your results, so you have them on file.