PPC ROI: How To Calculate & Calibrate
By: George Denby
Tags: Paid Advertising, Search Engine Marketing, Ppc Management, PPC, PPC Marketing

Are you running a small business with a PPC (pay-per-click) campaign? Do you want to know if it’s worth the investment or you’re just wasting thousands of dollars without earning a solid profit? We’re here to help you calculate your PPC ROI or your pay-per-click return on investment. Also, in this article. We will talk about the different approaches that you should consider when managing your PPC campaigns for your business.

What is PPC?

Before we proceed discussing the methods on how you’re going to calculate your PPC ROI, let’s talk about PPC first. PPC or pay-per-click is one of the multiple internet advertising models where it specifically drives traffic to websites in exchange for paying a fee each time someone clicks your ads. To put it simply, you’re buying visits to your website rather than gaining traffic from “organic” visitors.

Organic and Paid visitors

An organic visitor or organic traffic is generated by users that utilize search engines like Bing or Google that have a specific purpose when visiting your website. On the other hand, paid visitors are obtained by setting up paid advertisement promotions on the internet.

When someone clicks your ad — which generates visitors to your website — you need to pay the search engine a small fee for their service. If you manage your PPC campaign correctly, you don’t have to worry about the money you invest in your ads. For example, a $4 ad per click is nothing compared to when you convert a visitor in a $400 sale.

Managing a winning PPC campaign comes with great effort and time. It starts by looking for the right keywords for your business and organizing it to easily fit your campaigns and ad groups. After that, you need to set up your PPC landing pages for conversion optimization. Search engines like Google often reward advertisers that create relevant and effective pay-per-click campaigns, which gives more profit to your business.

Difference between Pay Per Play, Pay Per Impression and Pay Per Click

Pay-Per-Play

Pay-Per-Play (PPP), also known as Cash-Per-Play (CPP), is another online advertising method that plays an audio campaign on websites. Although audio ads are common on radio channels, it’s pretty unique on the internet. PPP consists of written content and visual images.

Pay-Per-Impression

Pay-Per-Impression (PPI) or commonly known as Cost-Per-Impression (CPP), is a compensation method that is based on the revenue of ads from the number of impressions or views. CPP is used generally with video ads, text ads, display ads, interactive ads, and many more. Many advertisers use PPI, which results in a higher compensation compared to PPP. Once your PPI ad reaches 1000 views, advertisers need to pay for the service, otherwise, they will stop your campaign. The premium varies on the type of your ad and targeted audience. Video ads can be over $20, while other types of ads average at $5 or lower per thousand impressions.

Pay-Per-Click Types

Compared to Pay-per-impression that requires a certain amount of views before you pay, Pay-per-click (PPC) rates cost much less per click.

Here are some of the Popular PPC or pay-per-click Platforms on the Internet

Google Ads

Google Ads (previously known as Google AdWords) is the most popular PPC advertising worldwide. This platform enables organizations and small business owners to display their ads on Google’s search engine and other affiliated websites.

Generally, Google Ads operate on a PPC model. Advertisers will need to bid on keywords and pay for each click from their campaign. When someone searches on Google with a keyword, they look into the pool of Ad campaigns and select a set of “winners” to appear in the designated ad space on the results page. The “winners” are picked based on the combination of different factors. These are:

Keyword Relevance: Creating relevant pay-per-click keyword lists, proper ad text, and tight keyword groups.

Landing Page Quality: Crafting effective and well-organized landing pages with relevant content and a clear call-to-action captions.

Quality Score: Google rates the quality and relevance of your landing pages, keywords, and PPC campaigns with their Quality Score method. PPC campaigns with better Quality Scores will get more ad clicks at lower costs.

Creative: An effective and unique ad copy is a pivotal factor to achieve a winning campaign.

Expansive: Pay-per-click (PPC) is an iterative task. That means you have to constantly check and improve the contents of your campaigns, and create an environment in which your keyword list is continuously growing and adapting.

Exhaustive: The keywords included in your PPC campaign shouldn’t be limited only on the most popular and frequently searched terms in your niche. Include long phrases that are relevant to your business. Even though they’re long, these keywords are more specific and less common, which will add up to account for the majority of search-driver traffic.

Facebook Ads

As one of the most popular social media platforms on the internet, Facebook plays a major role in online advertising and digital marketing. With over 2.7 billion monthly active users (MAU) in the second quarter of 2020 alone, it’s obvious that Facebook is a great platform for expanding your business presence. Along with Google Ads, Facebook Ads follow the pay-per-click method.

They offer three main objectives, which are broken into smaller objectives. These are:

Awareness: This FB Ad objective is focused on increasing brand awareness and it’s presence. It’s suitable for individuals or organizations that have already established their name in the industry.

Consideration: The Consideration objective is highly recommended for PPC ads that want to increase traffic engagement, which will turn into customers in the future.

Conversion: This objective aims to increase the conversions based on the impressions or clicks of your PPC ads.

When dealing with different PPC campaigns, it’s important to consider the right audience for your advertisements. With Facebook, you have several options for ad placement.

Facebook right column

Instagram Explore section

Messenger Inbox and sponsored messages

Stories on Facebook, Messenger, and Instagram

Facebook Newsfeed

Instant Articles

Facebook In-Stream Videos

Instagram feed

Facebook Marketplace

Facebook Video feeds

PPC ROI or Return On Investment

Now that you’ve grasped the fundamentals of PPC, let’s discuss the ROI or return on investment. Your return is the profit or your sales as a result of your advertising.

Managing different PPC campaigns is time-consuming and finding the right formula to calculate and report your PPC ROI might be hard for you.

Getting the percentage of your ROI = (Revenue — Cost)/Cost x 100 = ROI%

Let’s say you’ve earned $20,000 from a single PPC campaign. However, the total clicks of your PPC campaign are 15,000 with a rate of $1 per click, then your PPC ROI is 33%. Keep in mind that your Revenue includes only conversions coming from your PPC campaign.

PPC agencies help you to get the best possible return on investment for ad spend, and help to scale new leads.

Calculating Return on Ad Spend (ROAS)

While most of us want to know how to calculate ROI, many advertisers are actually referring to their return on ad spend (ROAS). So keep in mind if you want to calculate your return on ad spend (ROAS) or return on investment (ROI).

To put it more simply, it’s easier to calculate your ROAS. However, if you spend more money on your PPC campaign, such as a third-party tool or an agency to manage your campaign, then it’s better to compute your ROI.

Below — Image from Megalytic showing highly positive return on ad spend. PPC tools like Megalytic help you visualize this in a very simple way.

Return on ad spend can be figured out by dividing your total sales by your ad spend. Remember that your sales are earned by your PPC campaign.

The major difference between ROI and ROAS is whether you’re identifying your business related costs on your PPC advertising. On the other hand, the return on ad spend focuses on how you earn more money in revenue than you’ve spent on advertising.

If you search for the definition of ROI, it’s similar to the definition of ROAS, which is revenue minus cost, divided by cost. The only difference is how the cost will be calculated on your campaigns.

Pay-per-click (PPC) fees aren’t the only expenses to your PPC campaigns. There are other costs such as producing the products and paying for the clicks that weren’t converted into sales. Also, you need to consider the other costs like the credit card processing fees, costs of returned goods, and even the web hosting costs for your websites. You also need to include the salaries for your team, which can be considered as customer service costs.

There are several factors that you need to consider when you want to calculate your ROI or ROAS. Many people focus only on the click fees. However, that’s just the tip of the iceberg. Here are some factors that might help you identify the costs of your business with PPC campaigns.

Fees for the pay-per-click service

Salary of your team (admin, customer service representative, etc.)

Cost of marketing automation (lead gen app)

Web Hosting costs for your website

Equipment

Transportation costs

With the rise of PPC marketing, it’s easier now to gain traffic on your website. However, without the proper knowledge, it will cost you thousands of dollars should you incorrectly handle your business with a PPC campaign. If you have doubts about how to run your business with this type of advertising campaign, you can hire or consult professionals that are experts in handling PPC campaigns. Whether you create an ad on Google or Facebook, the success of your ads will still depend on the kind of approach you use for your business.

How to improve and audit your PPC ROI

It’s important to regularly audit your PPC campaigns. Make it a habit to analyze the performance of your account and make the following adjustments to calibrate the effectiveness of your campaigns.

Add PPC Keywords: Increase the presence of your PPC campaigns by adding suitable keywords, which are relevant to your business.

Split Ad Groups: Improve click-through rate (CTR) and Quality Score by splitting up your ad groups into smaller, more relevant ad groups, which help you create more targeted ad text and landing pages.

Review Costly PPC Keywords: Check your current keywords on your PPC campaigns. If there are expensive and under-performing keywords, try to use another keyword with the same meaning.

Refine Landing Pages: Calibrate your landing pages by checking the effectiveness of your content and review the calls-to-action (CTAs).