II. Measuring Conversions
To measure your results, you’ll need to make sure that
you’re measuring conversions. Once you set up conversion tracking, here are
some of the important statistics that can help you measure whether your
campaign is successful:
A. Conversions:
The total number of all conversions made within your chosen
conversion window after an Google Adwords click. It is the metric most
advertisers use and is one of the important ways to track the success of your
ads. It gives you the full picture of how many conversions Google AdWords
drives for your business. You can also customize this according to your
business goals. You can choose to count “every” or “one” conversion following
an ad click for each conversion action. This allows you to count conversions
based on how they bring value to your business. Or, you can choose to exclude
some of your conversion actions from any automated bid strategies you might
have set up.
B. Converted Clicks:
The tally of every Google AdWords click that resulted in one
or more conversions within your chosen conversion window. A conversion happens
when someone clicks your ad and then takes an action that you’ve defined as
valuable to your business, such as an online purchase or a call to your
business from a mobile phone. Conversions help you understand how much value
your online ads bring to your business. In reporting terms, the change means
the Conversions (One-Per-Click) will be replaced with “Converted Clicks,” and Conversions
(Many-Per-Click) will be replaced by “Conversions.”Advertisers can think of the
newly named columns this way:
Converted Clicks = Unique Customers.
This is “the number of clicks that convert within your
chosen conversion window (typically 30 days)”. So, if a customer makes two
separate purchases after clicking on an ad, they will register as one Converted
Click.
C. Conversion Rate:
Conversion Rate is probably the most significant metric for
your business because everything else is just numbered unless you can convert
ad-clicks into revenue. It is very similar to CTR. Instead of ad impressions
and clicks, it focuses on how many clicks lead to conversions. CR is used to
evaluate the utility of incoming PPC traffic. How many of these users that click
the add will go on to complete a purchase? This avoids the pitfall of CTR in
that you ultimately measure which ad brings in the highest percentage of
qualified traffic. The more you turn clicks into leads, and leads into
satisfied customers, the higher your conversion rate will be.
It is a great marketing performance metric for really
drilling down to how your terms and ads are performing for you. You may have a
great CTR, but if you aren’t converting any of those clicks, the conversion
rate will help tell you that and you’ll know it’s time to optimize. Conversion
rate also lets you look at the rate trend (vs. just absolute conversion number
trend) which can help you compare to conversion rates from other advertising
avenues – comparing to other Adwords metrics is vital in understanding how well
your ppc campaigns are performing outside of just your Google Adwords silo.
D. Total Conversion Value:
Total conversion value is the sum of all conversion values
for all conversions. Make sure you are assigning a value to your conversions so
you know the exact return you are seeing. This value should be assigned
directly in your conversion tracking code. Though you can see conversion value
through your analytics, it will be preferable to view cost and conversion value,
and ultimately return on ad spend, directly within one place, the Google
AdWords interface. To see the above statistics and other conversion data, you
can add conversion-related columns to any of the statistics tables in your
account.
III. Measuring Return On Investment (ROI)
Whether you’re using Google AdWords to increase conversions
such as sales, leads, downloads, you’ll want to measure your return on
investment (ROI).
A. ROI:
The ratio of your net profit to your costs. Why calculate
your ROI?
You’ll learn how much money you’ve made by advertising with
Google AdWords and can use that information to help you decide how to spend
your budget. For example, if a certain campaign is generating a higher ROI
compared to others, you can apply more of your budget to the successful
campaign and less on the ones that aren’t performing as well.
Calculate your ROI
The exact method you use to calculate your ROI depends on
your goals, but here’s one way to define it:
ROI = (Revenue – Cost of goods sold) / Cost of goods sold
B. Conversions:
Once you’ve started to measure conversions, customer actions
that you believe are valuable, you can evaluate your ROI. You can use
conversion tracking or Google Analytics to determine the profitability of a
keyword or ad, and track conversion rates and cost-per-conversion. Keep in mind
that the value of each conversion should be greater than the amount you spend
to get that conversion.
C. Sales:
If your business is web-based sales, you’ll need the revenue
made from Google AdWords advertising (this is the conversion value that you
set), costs related to your products sold, and your Google AdWords costs.
You’ll want to calculate your net profit by subtracting your overall costs from
your Google AdWords revenue for a given time period. Then divide your net
profit by your overall costs to get your ROI for that time period. Here’s the
formula:
Ratio to profit of overall costs = Revenue (measured by
conversions) – overall costs/overall costs
D. Page Views, Leads, and more:
If you’re interested in calculating the ROI for a page view,
lead, or other goal, you’ll use a different formula. First, you’ll want to
estimate the value of the action that you’d like to measure. To calculate your
ROI, you’ll subtract your overall costs from your overall revenue. Then divide
your net profit by your overall advertising costs. Here’s the formula:
Advertising ROI % = (Total revenue – Total cost)/Advertising
costs x 100
E. Cost
Are You aware of Where Your Money is Going?
Once your account is up and running (i.e. ads are showing
and searchers are clicking), you’ll want to look at how well your account is
performing based on the most important metric: MONEY.
A huge aspect of interpreting your Google AdWords data is
determining whether or not you are taking advantage of your advertising dollars
and not wasting money. You can’t expect high profits if you have high costs, so
you’ll want to make sure you’re reducing the wastage throughout your account.
F. Cost Per Click (CPC) and Cost Per Acquisition (CPA):
Cost per click is the amount you pay for each click. This is
important because it ultimately determines the financial success of your ppc
campaigns. While cost per acquisition focuses more on how much your business
pays in order to attain a conversion. Looking at both Adwords metrics will help
you answer the questions as to whether or not you are making money in your
account. Generally, your CPA will be higher than your CPC because not everyone
who clicks your ad will go on to complete your desired action (or in other words,
convert).
It’s always a good feeling knowing that people are
interested in your ads and are showing that interest by clicking, but if each
click is costing you more than you would pay for a fancy dinner, it’s probably
not going to feel too great at the end of the day. Your return on investment
(ROI) will be determined by how much you are paying for clicks, and by what
kind of quality you are getting for that investment. It’s important to monitor
your CPC so that you can determine if you are under- or overpaying for clicks.
And it’s equally important to monitor CPA because it determines whether or not
your conversions are being driven at a cost that is profitable.
CPC, of course, varies depending on the competitiveness of
the industry among other things, but you still need to take into consideration
whether or not you can still make money after you pay for the cost of your
clicks. That’s where CPA comes into play; if you’re paying more for that
potential customer than you can make off of them, then essentially you are
paying for that person to be your customer. Lowering CPC can require some
strategy as you want to maintain value while lowering the price you’re paying
for each click.
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