Calculate Your PPC ROI From Conversion To Sale
LAST UPDATED: TOPIC: Pay Per Click
Importance of connecting your marketing leads to sales
Connecting your actual sales with leads generated by PPC can be hard, but it is crucial in order to increase your return on investment. What is the point of running a PPC campaign and spending money if you don’t know how to analyse its results and you are not sure if it is performing? On the other hand, if you have a clear view of the results you are getting from your PPC campaigns, it will be easier to convince your boss to increase the marketing budget.
In order to do get that data, two teams need to work together: your marketing team and your sales team. You won’t be able to have a clear view of your PPC results converted into sales if those two teams are working separately.
Define your business goals
First your need to define your business goals. There is no way you are going to be able to determine if your marketing efforts are working if you didn’t set up any goals. You must be able to clearly state your break-even point (in order for your business to be profitable), the number of sales or the revenue you want to generate per month.
Keeping track of your leads
You need some technology to be able to connect your PPC leads to your revenue. You can use a CRM integration system or even your own spreadsheet or dashboard. What is crucial here is to keep track of the leads coming in, and what happens to them next. It doesn’t matter how you get that information, but you have to get it. That’s when your marketing team and sales team need to work closely.
If your sales team is getting calls coming from AdWords, it is important to keep track of them too. This should be simple enough as you can simply create a call extension in AdWords and track conversions from it. You can even specify to track calls over a certain length, or invest in some advanced call tracking software to really get insight into sales vs. service or general calls from PPC ads.
Impressions, clicks and click-through rate
The first set of metrics you should have a look at in order to convert your PPC leads to your sales are the number of impressions and clicks, leading to your click-through rate.
Let’s say to make things easier that you own a business that generates 20,000 PPC impressions a month, but from those 20,000 persons who view your ad, only 1,000 click on it. Your click-through rate is (1,000:20,000) x 100 = 5%.
PPC leads and conversion rate
You then need to have a look at how many AdWords leads you are getting from those clicks, which will determine your PPC conversion rate. Let’s imagine that from the 1000 clicks per month, 100 are converting in AdWords and sent to your sales team. Your conversion rate is (100:1,000) x 100 = 10%.
Qualified leads: determine your close rate
That’s the tricky part and that’s when you need information from your sales team.
In an ideal world, every lead converting in AdWords will lead to a closed deal. But of course it is rarely the case. People may pull out at any stage of the process, and the reasons they pull out are also very important. That’s why your sales team need to keep track of that information and share it with you. Imagine that you are a company providing personal loans. People might pull out at any time after converting from AdWords because they were not aware of your full terms and conditions and don’t agree with them anymore. Or the office they need to come to in order to sign the agreement is too far from where they are based, they work full time and can’t take a day off to come and sign it. Or you might be the one not accepting their application because they don’t have enough revenue or have a bad credit history.
This information is crucial because if you know the reasons people are dropping off, you have data to improve your process (in the case stated above, you could for example extend your office opening hours) or your website (you could for example mention the fact that it is mandatory to come and sign the contract in the office, along with your office opening hours.
So, let’s say that from the 100 leads passed on to your sales team a month, only 10 are qualified and lead to a sale. Your close rate is (10:100) x 100 = 10%.
Gross revenue per lead
You more than likely know the revenue a sale is bringing you. Let’s imagine each closed deal brings you €500 in revenue. If your PPC campaign brings you 10 deals a month, your total monthly revenue is 10 x 500 = €5,000.
Calculate your costs: advertising, administrative and production
In order to determine your net revenue, you need to calculate all your costs.
First you need to determine your advertising spend. Let’s imagine your average cost-per-click is €1.25. Your total ad spend for the month is 1,000 clicks x €1.25 = €1,250.
You then need to take into account the administrative cost linked to your PPC campaign. That’s the 100 leads that your sales team have to deal with. If your sales team employees cost you €100 per hour and that they process 10 leads per hour, the following budget is necessary to treat 100 leads a month: (100:10) x €100= €1000.
You also need to add your production costs if your business is related to selling products and not offering services. Let’s say it costs you €100 to produce a product. The monthly production cost for your PPC campaign is: 10 products sold x 100 = €1000.
In this scenario your total cost per month is: 1250 + 1000 + 1000 = €3,250.
Revenue per click
If we gather all the data from above, your net monthly revenue is: €5,000 – €3250 = €1750.
The revenue you are getting from a qualified lead is: €1,750:10 = €175.
But remember to get those 10 qualified leads, you need 100 conversions from AdWords. So your cost per conversion in AdWords should be less than €1,750:€100 = €17.50 in order to be profitable.
If we consider the amount of clicks needed to get those leads: 1750:1000 = €1.75 revenue per click.
Comparing revenue per click to cost per click is a simple but powerful way to demonstrate the success and improvement of your campaigns.
Why the value of a lead is useful
If you know the value of a lead, you can determine how many leads you need each month to reach the goals you want. Let’s say you want to have a monthly net revenue of €3500. You need to generate the double amount of leads above in order to get it. So you need to double your advertising budget. Or do a test and try and decrease your CPC and see if you can still get the same amount of leads with a lower spend.
Customer lifetime value
This metric is also important if you own the type of business that sells products or services that people might end up buying more than once. You should then take into account the lifetime customer value when you decide the worth of a conversion to your business. If a customer is likely to purchase from you again in the future, their value could be greater than the one of the initial transaction.