Calculating your ROI for your AdWords Campaign isn’t as straightforward as it might seem.
If you have Google Analytics, you’ll notice that there’s a default tab that shows the ROI of AdWords.
However, according to Brian Clifton, there are a couple of issues with this:
- Google Analytics combines your total revenue from both your transactions and goals. This could potentially lead to double counting. For example, if a user on your site adds something to their cart, it becomes a “monetized goal.”
- In addition to this, Google assumes that all your revenue is profit since it can’t add in the costs of your business.
Here’s an example of a Google AdWords ROI report:
ROI here is calculated as revenue – cost / cost.
In the example Brian gave, you’re making 500% ROI if your revenue is $600 from a $100 ad spend. There are a couple of things to be aware of here:
- When a product on your site is purchased, you might have both e-commerce revenue and a goal value captured for a single transaction (depending on how Google Analytics is set up on your site). The default ROI calculation performed by Google Analytics includes all types of revenue (transactions & goal values). This double counts revenue, which can throw off your numbers.
- Notice that in “Keyword 1” in the first row of the Google Analytics screenshot above under the “ROI” column, there’s the number 823.33%. This means that you can spend 9x as much on AdWords and still see positive ROI. Of course, this isn’t true.
According to Brian, there’s a massive difference between the default ROI listed in Google Analytics for each keyword compared to the real ROI.
Your real ROI calculation should also factor in your profit margin. The formula for this would be revenue x margin – cost / cost. In the example Brian gave, if your profit margin is 0.4 and your revenue and cost are $600 and $100 respectively, then your ROI would be 140%.
In other words, you can afford to spend 140% more on AdWords and still see positive ROI. However, if you just relied on the number in Google Analytics, you’d think it would be 500%