How to Calculate AdWords ROI?
The term Return on investment (ROI) simply refers to the profits you are making in comparison to your investment on ads. In order to calculate the real roi of AdWords, one will need two things, total AdWords revenue and total cost of the product. Then, you can calculate the roi by subtracting cost of ads from revenue.
Suppose the development cost of your product is $100 and AdWords cost is also $100. Then, your total investment is $200. Let’s say you earned $300 by selling that product using ads. So, your profit will be calculated as: (Revenue – total cost) = $300 – ($100+$100) = $100
And your AdWords ROI is:
Actual profits / total cost = $100 / $200 = 50%
This is how the roi of AdWords is calculated. You already know how much you are investing in the production of an item and how much you are spending on a particular AdWords campaign. So, you can easily calculate the total investment (cost) of the campaign.
You can take help of free tools like Google Analytics to track conversions to measure the performance of ads. Your AdWords account shows in details how your ads are performing, number of clicks, and revenue earned by ads.
The Roi of the Lifetime Value of a New Client
In addition to adwords ROI, It is also sometimes important for businesses to understand the total lifetime value of a client in order to make better decisions. The customer lifetime value (CLV) and ROI helps you understand the current financial value of the customer, so that you can evaluate overall performance of the business. The average CLV can be calculated by subtracting the customer acquisition cost from average profit contribution by customer. And the ROI of the lifetime value of client will be determined by dividing CLV by the average client cost.
ROI is probably the most important factor in figuring out the performance of an ad campaign. This shows the actual profits your ads are bringing for your business. It helps you make better business decisions, such as whether to continue with an ad campaign or remove it.