How to Calculate ROI in Google Ads ? Simple Guide

Are you promoting your business through Google Ads?

Well, it’s an excellent idea! The Pay Per Click (PPC) ads won’t disappoint you at all. Moreover, you should know that you can reach a majority of internet users through Google ads. And every business wants this fame.

So, what’s next is how to calculate your Return on Investment?

If you are still unknown about the exact calculation method, then this blog has got you covered! Hence, don’t waste any more time and check out this blog to know the perfect ways to calculate your ROI.

What is Google Ads?

The most popular Pay Per Click advertising in the world is Google Ads. This ad platform allows businesses to create ads that are displayed on Google’s search engines and other Google properties. Google Ads operate under the Pay Per Click model. Here, users bid on keywords and pay for each click on their advertisements.

Whenever someone conducts a search, Google dives deep into the pool of advertisers and selects a set of winners to appear in the advertising space. Winners are chosen based on factors. These include the quality and relevance of their keywords, ad campaigns and the size of their keyword bids.

Meaning of return on investment

When you put money behind a business strategy, ROI helps you determine how much profit or loss you have earned from your investment. For this, you need to follow a proper calculation method. It’s a simple ratio that divides the net profit or loss from an investment by its cost. Since the result is expressed in percentage, you can compare the profitability of different investment choices.

A business owner can use ROI to measure the return on the cost of advertising. For example, suppose you have spent 50,000$ on advertising, and the result yielded 75000$. So, your ROI will be 1400% on the ad expenditure.

The simplest way to calculate ROI in Google Ads

Pay per Click ads can be the fastest way for companies to build brand awareness, drive traffic to a website and generate high-quality leads. However, one of the biggest challenges you may face is measuring your efforts.

The top companies that provide PPC management services in India have mentioned the three ways to calculate the Return on Investment,

1) Return on Investment

2) Return on Ad Spend

3) Profit per Click

Let’s, have a look at each of them in detail below.

• Calculating return on investment

According to Google, ROI is the most vital measurement for advertisers since it shows the real effect of a PPC Campaign on your business. It is important to determine how your PPC Campaigns contribute to your business's success.

ROI is: The ratio of net profit to the total costs.

Consider all the expenses in your total cost while measuring the Return on Investment. Some of them include,

1) Costs spend behind Google ads, social media channels or any other platforms.

2) Account for any type of technology you are using to build and optimize your ads. This can be Search Engine Optimization and keyword research tools.

3) The total cost of employees needed to develop your PPC campaigns.

4) Keep accounts of the money spent behind hiring any third party agency behind this work.

Moreover, for every 1$ spent behind a PPC campaign, businesses earn average revenue of about 2$. Also, don’t forget to take all the costs into account.

• Determining the ROAS (Return on Ad Spend)

By calculating the Return on Ad Spend, you can determine the revenue collected for every dollar spent. The calculation is simply PPC revenue minus PPC cost, divided by PPC cost. The result will come in percentage.

Let’s an example to make you understand in a better way. For instance, if your PPC sales are 1500$, and you paid 1000$ for PPC click costs, then your ROAS will be 50%.

Since (1500-1000 = 500)/ 1000 = 0.5 which is 50%

Most business owners love this calculation method due to its simplicity. Most experts can perform this calculation in their heads, thus making it easy to perform optimization on the go. However, Return on Ad Spend is a great way to start PPC calculation.

Why is ROAS calculation important?

The Return on Ad Spend is essential to measure your ads' performance and strategy in your campaign. Even though you won’t get the full details of your investment, but you can gather data on the return from your costs spent on ads. Moreover, the main factor involved behind better ROAS is the average lifetime value of a customer.

• Measuring profit per click

To complete your ROI results, it is necessary to track the conversion points or viewers' actions on your website after seeing an advertisement. Some of the common examples of conversions are filling out a form, contacting your business, downloading a whitepaper or making a purchase. You must understand what happens when a customer comes across your ad.

For this, you must know that the value of each conversion must be greater than the amount spent to get the conversion. Furthermore, you must divide the total profit by the total number of clicks to measure profit per click.

For instance, if you have about 20$ on 5 clicks to get one sale and receive 30$ for that sale, then your profit per click will be 6$. With this calculation method, you will get to know where the click revenue is coming from. Although this method is a little trickier, but if you understand the metrics properly, you can easily generate them on a spreadsheet.

Get ready to calculate the ROI of your ad campaign

Lastly, which method suits you the best ?

You must always try choosing the one that suits your requirements. If you want to make a difference in your marketing strategy, you must follow these pointers. It is you who can understand where to increase or decrease your budget for certain campaigns. Moreover, if you are not confident with the calculation method, you can rely on a top marketing professional to do this job for you.