Chuck Aikens

Most online marketing plans contain Pay-Per-Click (PPC) advertising. With that in mind, you don’t want to just set a budget, pick some keywords and pay your bill each month. It’s important to look at the ROI of your PPC campaigns.

Google Adwords is a great tool that does a lot of the work for you if you’re using their PPC. They go ahead and calculate the conversion rate as well as the cost per conversion for you. That’s all well and good, if you understand the meaning of those two terms. Simply put your profit margin is the price of an item you sell minus the cost to you. A conversion rate is the percentage of people that click on your ads who actually purchase something. The break-even point for your PPC can be determined by multiplying your conversion rate and profit margin.

Ideally you’d like to bid on keywords using this formula to determine a maximum amount of money to spend per click. If you can spend less than the max on each click or have a higher conversion rate then you’ll move into making a profit, which is where we all want to be.

Another way to determine ROI takes months and months of historical data. If you have this information you can look at it to find out how often groups of customers return, if they buy more and what they purchase. This helps you determine the lifetime value of a customer, which can help you determine if you should bid for one-time buyers or lifetime customers.

Increasing your ROI on your PPC bids is important for increasing your profits, but it also helps you bid the highest for your keywords successfully. After all, there are only a few visible PPC spots on search engines and you don’t want to be throwing your money away.