Launching a paid advertising campaign, while crucial to a successful product marketing strategy, is not the end goal in itself.
As an ecommerce business, you’re in it for the long haul, which means you need to dedicate enough time, resources, and effort to track and optimize its performance over time. Just like with any other marketing strategy, you also need to measure the success of your PPC campaign and analyze its effectiveness.
Measuring Success of Your PPC Campaign with ROI, ROAS, and ACOS
If reviewing all your pay-per-click metrics makes your head spin, you aren’t alone. Even the most experienced marketers can easily spend hours going through countless KPIs without actually getting to the bottom of how effective the ad campaign is.
But what if we told you that there was a magic number (or three of them) that would show whether your ad campaigns are actually doing what they are supposed to be doing—generating profits and revenue?
Depending on what channel you’re advertising on, to quickly measure the success of your PPC campaigns, you’ll look at your ROI, ROAS, and RCOS.
Return on Investment (ROI)
Chances are, you are already familiar with the term ROI (Return on Investment). The term comes from the finance industry and is traditionally calculated as:
ROI = (Profit - Cost) / Cost
The major difference when applied to measuring the success of PPC campaigns comes from the way that the cost is defined.
PPC click costs aren’t the only expenses associated with running a PPC campaign. In ecommerce, there are additional costs to produce products and fulfill orders. Then, there is a cost of returned goods and credit card processing costs. You also have to keep in mind customer service costs or the salaries of the people who answer email inquiries or phone calls.
Even in lead generation, when you aren’t actually selling physical products, there are still certain inherent costs. Think about the fixed costs that keep your website running, such as your equipment, servers, domain hosting, and technical support. What about the salaries you have to pay to people that follow up on the leads? And the cost of marketing automation software?
The idea is, to calculate ROI, you need to truly pinpoint the total cost of your paid advertising and factor in ALL of the costs, not just the click fees.
Return on Ad Spend (ROAS)
When most online marketers talk about ROI, they are actually commonly referring to something known as ROAS or Return on Ad Spend.
ROAS is usually shown as a percentage and can be simply calculated as:
ROAS = (PPC Revenue - PPC Cost) / PPC Cost
Let’s say, the sales from your PPC efforts have produced a $1000 revenue, and you have spent $500 in PPC click costs. Your ROAS will then be:
ROAS = ($1000 - $500) / $500 = 1 = 100% or 1x RoAS
The main benefit of ROAS calculation is its simplicity. Google Ads manager allows you to measure RoAS at a variety of levels: at the campaign level, ad group level, overall account level, and more. PPC marketers can even often perform the calculation right in their heads, making it easy to conduct optimizations on the go.
Naturally, a low Return on Ad Spend means that you aren’t using your ad budget in the most efficient way. You have several options to improve this key metric: you can be more strategic about which keywords you use, optimize your bidding strategy, or opt to use ad automation platforms like Ampd to launch and manage your Google Ads campaigns.
Advertising Cost of Sale (ACOS)
The metric ACOS that you may encounter on Amazon stands for Advertising Cost of Sale, and it’s nothing more than an inverse of ROAS describing how much PPC revenue you are producing from the money you are spending on paid advertising.
Advertising cost of sale can be calculated as:
ACOS = Ad Cost / Sales from Ads
For example, you’ve spent $100 on PPC ads to generate $500 in sales. Your ACOS will be then:
ACOS = $100 / $500 = 0.2 = 20%
As a general rule, lower ACOS means that you are getting more bang for your buck and a higher overall ROI on your ad dollars.
Other Key Success Metrics of Paid Advertising
After taking a glance at your campaign’s ROI, ACOS, and ROAS, it is time to dive into a more detailed review of your ad KPIs and analyze the wealth of information you have on hand.
Some of the key performance indicators to consider when measuring success of your PPC campaigns include:
Cost Per Conversion (CPC)
CPC, or Cost Per Conversion, is used to determine how much you have spent to obtain a new client.
High CPC can signal that you need to improve your campaign and adjust your strategies. If your ad campaign costs come up to cost higher than what you earn from a lead, then you aren’t using your budget wisely.
Your Google Ads Quality Score is an excellent indicator of whether the combined performance of your ads, keywords, and the landing page is good or not.
Generally, the more relevant your keywords are to the searchers’ intent and search queries, the higher your Quality Score will be. A good Quality Score means that your CPC has dropped, your ad rank has improved, and your overall ROI has increased.
Impressions and Clicks
The number of Impressions describes the frequency of your ads appearing on search engine results pages. Clicks, on the other hand, describe the number of times a user has clicked on your Google ad.
Many people make the mistake of focusing exclusively on the Cost per Acquisition of the campaign. Doing so will lead you to miss out on the volume factor, which, in turn, will reduce volume-associated profit. With any paid advertising campaign, it is crucial to strike a balance between conversion tracking and the overall volume.
Search Impression Share
The Search Impression Share metric describes how many times your ad was shown as compared to how many times it could have been shown.
The Search Impression Share is commonly used to see which percentage of searches was lost due to budget restrictions. Needless to say, a low score in this metric can have a negative effect on your overall PPC campaign performance.
Click-Through Rate (CTR)
The Click-Through Rate or CTR is among the most closely monitored success metrics by PPC professionals. You can calculate CTR by dividing the number of people who click on your ads by the total number of people who view them:
CTR = # of Clicks / # of Impressions
Higher CTR means that your audience has found your ads helpful. As a result, your Cost Per Conversions (CPC) will go down, while your ad Quality Score will skyrocket.
Conversion is the ultimate goal of every PPC campaign. As such, the Conversion Rate describes the number of times a user has clicked on your ad and ended up completing the desired action within the specified time period.
By keeping an eye on your Conversion Rate and comparing it to the industry averages, you will be able to gauge whether your target audience is buying your product at an ideal rate.
The Bounce Rate is used to determine whether certain aspects of your campaign require additional optimization.
This metric describes the percentage of visitors who have visited your site or landing page and left without responding to your call to action. A high Bounce Rate can indicate that you are targeting an audience that is too broad, with most visitors simply not interested in what you have to offer.
As opposed to the Conversion Rate, the Wasted Spend will show you when your PPC campaign is underperforming. In a nutshell, wasted spend measures how much of your budget you are throwing away when visitors click on your ad but fail to convert.
By reviewing your Wasted spend and seeing how much money you could save, you can optimize certain areas within your account. One effective strategy to reduce your wasted spend is to use negative keywords that can prevent your ad from showing up in search result pages when these unrelated keywords are used in a search query.
Improve Your PPC Metrics with Ampd
Regularly measuring the success of your PPC campaigns is a crucial step to determining what works and what doesn’t. By finding the weak spots and optimizing your strategy to overcome the issue, you can reduce your ad spend and improve your conversions, which will ultimately lead to higher profit margins.
To make the job easier, you can use a specialized turnkey system from Ampd, which automates every step of the process to ensure that you are set for success with paid search advertising.