Formulas Explained
Understanding these simple formulas are CRITICAL when marketing your business. It usually takes 3 months minimum to see results, however, implementing Google Adwords will give you a competitive advantage over you competition.
1.Return on Ad Spend (ROAS)
ROAS = Revenue / Adspend x 100 This is figure will simply calculate how much revenue a company makes for every dollar they spend on advertising. For example, if a company spends $1,000 on Google Ads and gets $1200 in revenue, the ratio would be 1.2 which would make the campaign a success and very profitable.
2.Return on Investment (ROI)
NET profit / total investment * 100 Not to be confused with ROAS, this figure takes account of NET profit ( Revenues – Expenses) divided by your marketing investment. It much more accurate of how profitable your Google Adwords Campaign is.
3.Conversion Rates
This figure is calculated by how many web site visitors to your landing page or website turn into actual paying long term customers. For example, if 100 people visited your site by clicking on your Google ad and 10 people ended up calling your business, that is a conversion rate of %10. Typical conversion rates are %1-3, in other words you will need to spend money for 100 visits to make at least 1 sale.
4. Impressions.
This is the number that your Google Ad wins in the virtual auction whenever a potential customer types in a specific keyword looking for your business. Whenever you win an ‘auction’ your Ad will show up on Google. The higher your keyword bid and the quality score of your landing page, the more impressions you will get.
5. Click Through Rates
After your Google Ad wins an ‘impression’, how many times a customer clicks on your Google Ad and goes through your website will determine your click-through-rate. The higher the click through rate, the higher probability of creating a sales lead (potential customer) for your business.
6. Bounce Rate
This figure is bad news for your campaign. A high bounce rate means people went to your website and quickly left without taking any action. It typically means you need work on your landing page or your offer. It signifies that your ‘potential’ customer clicked on your Google Ad and did not find what they were looking for. These formulas and definitions are the tip of the iceberg when dealing with Google Ads. There are numerous considerations when dealing with Google ads such as calculating the life time value of your customer and how aggressive you want to be in growing your business and gaining customers. Contact me below for a consultation!
Conclusion
Understanding these simple formulas would go along way when trying to figure out how much to spend and where to start. The worse possible strategy is to invest into advertising and not have a clear plan on how to spend your ad dollars. Confused? Feel free to contact us.
