Google AdWords Workshop – Part 10:
ROI Based Decision Making

The following article is part 10 in our series on running your own pay-per-click advertising campaign with the Google AdWords program. If you are new to AdWords, read the introduction here first.

In this post I introduce the idea of making decsions based on the returns you’re achieving from your campaign investment.

In a marketing context, return on investment is calculated by expressing gross profit as a ratio of the advertising spend that produced that profit.

So, if your gross profit per conversion is $100 and you sell 200 units from an ad spend of $5000, then your ROI is said to be 300%

Of course, that begs the question . . . what constitutes a good return?

In general, you can forget about looking for a definitive number . . . there isn’t one. ROI is about comparing RELATIVE performance.

For example, a good return from your AdWords campaign would be one that’s greater than the return you normally achieve from other advertising channels.

A good keyword ROI is one that is greater than your average ROI.

ROI is also about the efficient use of limited capital. For example, advertisers who operate on a fixed monthly budget sometimes use ROI to prioritize how they spend that budget.

You can do the same. Calculate ROI for each of your keywords, sort the results highest to lowest and then work your way down the list until you reach the point where total spending equals your marketing budget. All keywords above that point should get first call on your budget.

I like the way Kevin Lee, one of the leading search marketing commentators, explains this approach. Kevin says “you should always buy your best clicks first”.

Those high ROI keywords produce more profit per dollar invested, so they represent the most cost effective use of your working capital.

Your return on investment results can also help refine your bidding strategy. You could adjust bids based on the variance from the cost-per-order target in your budget, but that does nothing to refine the target itself.

Professional marketers often address this by segmenting their ROI results into groups to utilize the common performance history of those groups.

For example, the format might be 3 groups comprised of best performers, average performers and worst performers. The professional then finds the average order value, profit margin and conversion rate for each segment, and uses that data to refine his bidding.

Typically, that means raising the allowable CPO for the most profitable segment and lowering it for the least profitable segment.

Sometimes they’ll also reorganize the campaign structure by establishing a separate budget for each segment and fund those budgets based on ROI performance.

If this ROI and segmentation stuff sounds like overkill for your situation, then at least consider creating a separate budget for the AdGroups that constitute the bulk of your spending. Doing that alone is likely to lead to improved performance through better focus on the part of your campaign that matters.

Identify the best and worst converters in that group and refine the bids for those keywords based on actual performance.

You can make the job of reorganizing your campaign structure easier with the Move or Copy Keywords and Ad Text tool in your control panel.

Use this tool to search, select, and move or copy keywords and ads from one Ad Group to another.

Bear in mind however, that AdWords will treat relocated keywords and ads as new items, meaning that any statistics they have accrued will not follow them to the new location.

Another tool you absolutely must get acquainted with is the My Change History log.

Knowing what caused a particular change in performance is obviously crucial to managing improvement. So make a point of using this guy to track the changes you make to your account.

Use it to track additions and changes to ads, bids, keywords, match targeting, network distribution . . . the lot.

Gary Elley

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