About return on investment (ROI)
Whether you use Google Ads to increase sales, generate leads, or drive other valuable customer activity, it's a good idea to measure your return on investment (ROI). Knowing your ROI helps you evaluate whether the money you're spending on Google Ads is going to a good cause: healthy profits for your business.
How ROI Works
ROI is the ratio of your net profit to your costs. It's typically the most important measurement for an advertiser because it's based on your specific advertising goals and shows the real effect your advertising efforts have on your business. The exact method you use to calculate ROI depends upon the goals of your campaign.
One way to define ROI is:
(Revenue - Cost of goods sold) / Cost of goods sold
Let's say you have a product that costs 100ドル to produce, and sells for 200ドル. You sell 6 of these products as a result of advertising them on Google Ads, so your total cost is 600ドル and your total sales is 1200ドル. Let's say your Google Ads costs are 200,ドル for a total cost of 800ドル. Your ROI is:
(1200ドル - 800ドル) / 800ドル
= 400ドル / 800ドル
= 50%
In this example, you're earning a 50% return on investment. For every 1ドル you spend, you get 1ドル.50 back.
For physical products, the cost of goods sold is equal to the manufacturing cost of all the items you sold plus your advertising costs, and your revenue is how much you made from selling those products. The amount you spend for each sale is known as cost per conversion.
If your business generates leads, the cost of goods sold is just your advertising costs, and your revenue is the amount you make on a typical lead. For example, if you typically make 1 sale for every 10 leads, and your typical sale is 20,ドル then each lead generates 2ドル in revenue on average. The amount it costs you to get a lead is known as cost per action (CPA).
Why ROI matters
By calculating your ROI, you can find out how much money you've made by advertising with Google Ads. You can also use ROI to help you decide how to spend your budget. For example, if you find that a certain campaign is generating a higher ROI than others, you can apply more of your budget to the successful campaign and less money to campaigns that aren't performing well. You can also use ROI data to try to improve the performance of the less successful campaigns.
Use conversions to measure ROI
To identify your ROI, you first need to measure conversions, which are customer actions that you believe are valuable, such as purchases, signups, web page visits, or leads. In Google Ads, you can use the free conversion tracking tool to help track how many clicks lead to conversions. Conversion tracking can also help you determine the profitability of a keyword or ad, and track conversion rates and costs-per-conversion.
Tip
Many Google advertisers use Google Analytics to track conversions. It's a free web analytics tool that helps you learn how your customers interact with your website. Learn more about importing conversions from Google Analytics..
Once you've started to measure conversions, you can begin to evaluate your ROI. The value of each conversion should be greater than the amount you spent to get the conversion. For example, if you spend 10ドル on clicks to get a sale, and receive 15ドル for that sale, you've made money (5ドル) and received a good return on your Google Ads investment.