Calculating your REAL ROI for Google Ads (AdWords)

Calculating your REAL ROI for Google Ads (AdWords)

When it comes to determining the effectiveness of your Google Ads (Google AdWords) account, in particular search Ads (those paid ads that appear above organic in the search results), it is normal to be confused by the vast number of metrics available. As a marketer or business owner, you might be wondering which metrics can determine the success of your Google ads. 

How do you know if its *working*? 

What sorts of results should you expect? 

Your Google Ads Agency says it’s working, but the phones are not ringing…

No doubt you are confused and more so concerned..

Let’s break down some key metrics that will provide you a clear overview and will help you assess the success and performance of your Google Ads Campaign.  

Why use Google AdWords for marketing?

Google Ads can be a very cost effective, controlled and scalable lead generation machine.  From trades companies to professional services and eCommerce, Google Ads allows you to create strategic marketing goals around services you’d like to generate lead, the cost of lead and the spend to invest.  This sort of control is not an option with SEO Services, where the results can be lucrative but very much determined by the Google Algorithms and often uncontrollable factors. 

Google Ads on the other hand provides a very systemised approach that is a marketers dream.  Full visibility over data, ability to see what is and isn’t working right down to the search query used and fully controlled Ad Copy, Location and Ad scheduling.  You can determine what is and isn’t working and adjust accordingly.

But, first you need to have that valuable data at hand and ensure you are evaluating the right metrics.

What Google AdWords Metrics Should I be Looking At? 

  1. Conversions
  2. Clicks
  3. Click Through Rate
  4. Conversion Rate
  5. Quality Score
  6. Look at your Google Analytics Data
  7. Cost per Click
  8. Cost

TIP: If you are using a PPC Agency to manage your ads, simply send them an email asking for a report with these metrics and some insights for each!

1. Conversions 

Conversions are the core of working out your Real Return on Investment in Google Ads.  More often than we would like to see, Conversion tracking hasn’t been set up (See point on Google Analytics data further down the article).  

This poses a rather large problem: How do you determine Real ROI (and success) if you don’t know what is driving the leads and sales?  How can you optimise to remove the wastage of what isn’t working and focus on what is?

Understanding what you are measuring and how many leads or sales it generates is at *its core* how to make Google Ads campaigns work for your business.  

What is ROI (or return on investment)?

ROI in Google Adwords measures how much profit you made from the advertisements compared to how much you spent on those advertisements. 

You can calculate return on investment by taking the revenue that you received from your ads, subtracting it with the overall costs, and then dividing it by your total costs: 

ROI = (revenue – the cost of goods sold) / cost of goods sold. 

Why should you calculate your ROI?

By calculating ROI, you will understand how much revenue you have earned by advertising with Google AdWords. Furthermore, you can use this detail to utilise your monthly budget wisely. For instance, if a particular campaign generates a higher ROI than others, you can spend more money on a successful campaign than the ones that are not performing well. 

Of course, this is all dependent on those conversion goals being set up in the first place. See how important they are?

In Google Ads, conversions  are recorded when a person clicks on your paid ad and then completes a conversion action that you have described as valuable to your business. (such as calling your business from a mobile phone, signing-up, an online purchase, downloading your app, etc.) 

Tip: In our Google Ads Accounts, we set it up so that the conversions are tracked as “unique” so that you don’t get false data when the same person completes your contact form three days in a row. 

google adwords conversion rate calculation

How to track conversions in Google AdWords?

You can track conversions using the Google Ads conversion tracking code, or you can integrate your existing Google Analytics conversion goals into Google Ads.  We find this most effective, as the data is cleaner.  What you see in Google Analytics conversions is ideally mostly the same as in Google Ads conversions.  It also means only one tracking code. 

You can track different conversions; the most popular are:

  • Calls
  • Form Fills
  • Downloads
  • Sales for eCommerce
  • Subscribes
google adwords conversions tracking

With advanced integrations like Google Tag Manager you can track email link clicks and much more, taking your conversion tracking to the next level.  We highly recommend this to really ensure you are measuring your REAL ROI.

You see, someone who subscribes is at a different stage of the purchase cycle to someone who contacts you via a form, or requests a consultation.

Setup conversion tracking to allow you to track the number of conversions, track cost-per-conversion and conversion rates, and to determine the profitability of your Google Ads campaign, and track all conversions, micro and macro, that are important to your business.

2. Clicks

Clicks show you how many times people have clicked on your ad. 

Clicks give you an indication of the spend, as the Google Ads action is a pay per click model.  Look at your clicks by campaign to work out how much traffic potential there is and also to see where your spend (or investment) is going.  Ideally, the majority of your clicks are going to your main campaigns that are expected to generate high click volumes.  

You can measure click performance right down to the search query (the term typed into the Google search) which provides invaluable data for optimisation.  There is a lot more we can discuss on clicks, but let’s keep going…

3. CTR (Click Through Rate)

The click-through rate (CTR) of your Ad Campaign tells how relevant your ads and keywords are to your target audience. You can also describe it as a ratio that indicates how many people who see your advertisement end up clicking on it. Here are some other things you should know about CTR:  

  • CTR is calculated by dividing the number of clicks that your ad gets with the number of times your ad appears on a search result page (CTR = clicks/impressions). So, for instance, if your ad was clicked five times and it had 100 impressions, the CTR would be 5%. 
  • A high CTR is a positive indication that users find your ad relevant and useful. 
  • Your CTR also shows the level of competition in the ad space. So if the CTR keeps changing dramatically, it may imply that the main competitor has left the ad space, or it could also mean that you have a new competitor. 
  • You can use the CTR to determine which keywords and ads are effective and which needs improvement. Remember, the more your ads and keywords relate to what your business offers, there are more chances of a user clicking your ad after searching for your keyword. 

According to Instapage, the average click-through rate in Google Ads across all industries is 0.50% on the display network and 5.06% on the search network.

what is a good ctr

Tip: If your Google Search campaigns are showing a click through rate of 1% or lower, as your agency if Google Search Network and Google Display Network are both in the same campaign.  If they are, split these out and you will see instant improvements in both results and visibility over your data! 

4. Conversion Rate 

Your conversion rate is one of the key measures not only in Google Ads, but when measuring your overall digital marketing performance.  Becoming familiar with your different marketing conversion Rates will help you assess the right digital marketing channels and what can be improved.

What is a conversion rate?

Straight from Google themselves

“Conversion rate: Definition.:

The average number of conversions per ad interaction, shown as a percentage. Conversion rates are calculated by simply taking the number of conversions and dividing that by the number of total ad interactions that can be tracked to a conversion during the same time period.”

How to calculate conversion rates?

You can calculate your conversion rate by simply taking the number of conversions and dividing it by the total number of visitors. So, for instance, if out of 1,000 visitors on your sites, you could convert 5 people, then your conversion rate would be 5% (50/1000 X 100 = 5 %). 

how to calculate conversion rate

Keep in mind that the main aim of a Google Ads campaign is to attract more conversions. So it would be best if you continued monitoring the conversion rate to make your ads more effective and get people to click them and take the desired action.

What is a good Google AdWords conversion rate?

A healthy conversion rate ensures that the money you spend will generate profits (ROI). Most companies out there consider a 1 to 3% of conversion rate as a positive outcome. However, this performance metric entirely depends on your customer base and the type of business you are involved in.  

If you are investing in Google Ads, then Conversion Optimisation should be a key consideration.  You can also find some website optimisation tips you can apply yourself here. After all, understanding your conversions and what makes your customers happy will increase conversion rates and therefore get you more bang for your buck

5. Quality Score

Quality Score (QS) is a key metric of Google Search Ads and provides an indicative “score” out of 10. It’s a way to measure the relevance of keywords, ads and landing pages (amongst other things). 

The main aim of Google is to offer the most valuable and relevant information to searchers online. Hence, you can use QS to evaluate how much Google trusts and supports your ads as compared to your competitors. 

Quality Score is calculated based on click-through-rate, ad relevance, keyword relevance, and user experience. Of course there are other factors but these are the main ones to keep tabs on.     Quality Score is most commonly used at a keyword level., within Google Ads, it’s very easy to see these reports and receive updates of the Quality Score.  As a basic rule, a QS of 2 or 3 means there is some relevance lost, review your Ads and Landing Page and check they are all aligned to each other.  A 6 or above and you are doing well (dependent on your industry).  8 and above is very good and shows strong relevancy.

google ads quality score

QS makes sure that your ads campaign is relevant to search queries and that it is providing a positive experience to users. Overall, Google uses QS to decide where your ads show, how often your ads show, and how much you pay for each click. So its a good one to keep under control. 

6. Look at your Google Analytics Data

If there is one thing we suggest you check as an action from this article, please check your Google Analytics and Google Ads linked.  Sharing this data is imperative for measuring the Real ROI of your campaigns!  If this isn’t done you can do it yourself, have your PPC team do it, or you might need to talk to your web development company.

For Advanced metrics, look at the bounce rates in Google Analytics as a metric for the success of your ads.  If you have high bounce rates then the ads and landing pages are perhaps not as relevant as they could be.  

7. Cost Per Click

Cost Per Click (CPC) means the amount you pay for each click on your ad. This metric is essential as it will eventually determine the financial success of your ad campaign. You should regularly monitor your CPC because it will help you to see whether you are overpaying or underpaying for clicks. 

The average cost per click may vary based on the type of business you have, your industry, and the types of networks you advertise on. Highly competitive businesses with higher-priced conversions, such as industrial equipment, expensive financial and legal services, or software industry, appear to have higher CPC prices.  

8. Cost

Just as different ad campaigns generate different revenue, they also have different costs. “Cost” in Google Adwords is an overall metric that shows how much money you have spent so far on your ad campaign.

Setting a monthly budget and letting your ad campaign run is not enough. You have to keep a close eye on how much money you are spending to get paid traffic and adjust your cost several times a week according to the market demand and your budget goals. 

In conclusion, your Google Ads should be a source of leads and sales. Like all marketing, it takes some time to get the balance right, but once it’s firing, you can expect high-quality leads and to sell more products online. So consider the Google AdWords metrics mentioned above and make sure you are seeing these metrics in your monthly reports. These metrics and the insights and recommendations that come with them from your agency, give you a detailed overview of your REAL ROI, so that you can continuously improve your advertising campaign’s performance.

If you would like a free Google Ads audit from our Google Ads experts get in touch with our friendly team today.