28 Apr 2016

How to Prove the ROI of Your PPC Ad Campaigns in 7 Metrics

There are several important metrics to take into consideration when analyzing your PPC campaign performance to prove your ROI. While each metric has its own place and importance, many people get hung up on more “vanity” metrics like click-through-rate and average position.

The metrics you should pay attention to really depend on your end goal. If your goal is to be in the first position all the time, then average position will obviously be a very important metric. However, if you’re trying to prove the value of your PPC campaigns and even more importantly, trying to help connect PPC leads to revenue to make a business case for your efforts, there are some other metrics you should know.

Want to dive deeper into the principles outlined in this post and learn more important PPC metrics? Download our 10-page guide that goes into this very process of connecting leads to sales: How to Track Revenue from PPC Leads to Offline Sales.

The 7 metrics below will help you truly prove the value of your paid campaigns:

1. Cost per Lead

This is a basic and common metric, but it is important because it tells you how much you’re paying for each lead. CPL is easy to figure out if you know how much revenue and profit you’re making from each lead (more about that later). To calculate your cost per lead, simply divide your total ad spend by your total number of leads.

Total Ad Spend/Total Number of Leads = Cost Per Lead

Cost Per Lead

2. Revenue per Lead

On the most basic level, revenue per lead is calculated by dividing your total revenue by your total number of leads. However, this metric is a little misleading, because it takes into account every single lead you’ve received. Since not every lead is created equal – you’d ideally be able to calculate the revenue from high-quality leads.

Total Revenue/Total Number of Leads = Average Revenue Per Lead

Revenue button on computer keyboard

3. Profit per Lead

Figuring out your revenue per lead is one thing, but how much is your company actually profiting from each online lead? In order to figure out this metric, you have to determine all of your expenses, so you can subtract that number from the revenue to determine your actual profit per lead.

Total Revenue – Expenses/Total Number of Leads = Average Profit Per Lead

profit per lead

4. Close Rate for Leads

This is another metric that will require some cross-team collaboration between marketing and sales. It’s important to know how many leads are being closed so that you can accurately calculate your cost per lead and return on ad spend goals.

Total Number of Leads/Total Number of Closed Sales = Average Close Rate

close rate

5. Revenue Per Click

This metric is exactly what it sounds like – how much revenue are you earning each time someone clicks on your ad? This is important because with pay-per-click advertising, you’re being charged for each click on one of your ads. If you know how much you make from each click, it can help you determine how much you can actually afford to pay for each click. That will help you determine effective bid strategies. To calculate revenue per click, simply divide your total revenue by the number of clicks on your ads.

Total Revenue/Total Number of Clicks = Revenue Per Click

revenue per click

6. Return on Ad Spend

This is perhaps one of the most important metrics when it comes to PPC advertising, because it lets you know exactly how much money you’re making from the amount you’re spending on ads. If you have a clear return on your ad spend goal (i.e. you want to make $5 for every $1 you spend on ads), this metric can be instrumental in helping you determine how much you should be bidding.

Revenue of Product or Service Sold/Ad Spend = Return on Ad Spend

roas

7. Break-Even Point per Lead

Before you can figure out how much revenue you want to make from each sale or how much you can afford to spend on ads, you need to figure out your break-even point. This metric will tell you how much of a return on ad spend you need to see before you gain back what you’ve spent in advertising costs and other expenses. From there, you can easily figure out how much more you need to make from each lead in order to turn a profit.

(Close Rate x Revenue per Sale) – (Cost of Goods Sold/Average Leads per Sale) = Break Even Point
Average Leads per Sale = 100/Close Rate

break even point

This is by no means the end of the list – there are a lot of other metrics that can be equally as useful – but these are a good start. It’s also important to keep in mind that the metrics above should be calculated for each product or service that you offer. For example, if you provide both residential and commercial services, you’ll most likely have different cost and revenue figures for each, and it’s important to know the difference so you can bid appropriately.

Track Revenue from PPC Leads to Offline Sales

Uncover the Real ROI for your PPC

Learn more in this 10-page guide about connecting the dots between leads generated online and sales converted offline.

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