Measuring ROI From AdWords If You Are A Local Business

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RICHARD TALBOT Head of Paid Search

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It is crucial to measure the return on investment you are getting from your AdWords campaigns, especially if you are a local business. AdWords help is important: you probably don’t have a huge advertising budget and there is no point of wasting money on advertising tools that either don’t work or you just don’t know if they work. Measuring your ROI will also be a good starting point to come up with a good campaigns optimisation plan. If you run several campaigns and see that one in particular is getting a higher ROI, you should consider applying more budget to that successful campaign and less to other ones.

ROI is the ratio of your net profit to your costs. When you are using AdWords, you need to add advertising costs (the money you spent in AdWords) to your production costs, delivery costs or other administration costs. The formula to calculate your return on investment is: (revenue – cost of goods sold) / cost of goods sold. So imagine your sell 6 products costing each one €200, but the production cost is €100 per product, and you spend €200 in AdWords advertising, your ROI will be: [(6×200) – (6×100) – 200] / (6×100) + 200 = 50%

Different conversions types

You need to think of what actions are valuable for your business. Conversions can usually be split in 2 types: macro conversions and micro conversions. Macro conversions are the most obvious and common conversions: completed purchases, phone calls, contact form submissions, downloaded documents, etc. But they are also smaller actions that could have a value for your business, such as certain page views, time spent on your website. Those small actions, even if they are still interesting for your business, don’t have the same value. That’s why we call them micro conversions.

Ecommerce and online sales

If you own a retail business, the top actions you want to track as conversions are your online sales. It is easy to measure your ROI for sales as you know the selling price for each product and its production and delivery cost.

However, if you own a physical store, it will be tricky to measure the store visits conversions that are influenced by your AdWords campaigns. A lot of people first start to compare products online, but then they actual go to the physical store to buy the product of their choice. Google is aware of this and is now offering store visit conversions tracking, but only to certain AdWords advertisers (some conditions are to have multiple physical store locations and to receive thousands of ad clicks). Hopefully, Google will offer this service to local and small advertisers soon.

In the meantime a good way to track offline sales is to use special promotions or coupons in AdWords. That way when people redeem your offer you actually know they are coming from AdWords.

Track other leads

Measuring ROI on other conversions is a bit trickier. You really need to ask yourself how much a specific action is worth to your business and how much work was involved in order to get it.

Phone calls conversions

Tracking phone calls in AdWords is quite straightforward. You just need to set up a call extension in AdWords and then track calls as conversions.

Phone call tracking is particularly important if you own a service-oriented company like a plumbing, locksmith or window replacement business as customers usually call for immediate needs. You may wish to consider advanced call tracking software if you have a large enough volume of calls to justify it.

You can also set up a default number of minutes a phone call should last to be considered as a conversion. That way faulty phone calls won’t be tracked as conversions in AdWords.

The hard part is to decide how much a call is worth to your business. But you are the only one who is able to answer that question. Let’s say that you usually close a deal every 10 phone calls. And each sale is worth €200 average .Your cost per conversion must be less than €20 for your business to be profitable. But you also need to take into consideration the time invested in answering those phone calls. Are you the one answering them? Or do you pay employees to do it? Let’s say your customer service answers about 10 calls an hour but you are paying them €50 per hour. Your cost per conversion in that case should be less than 15. And you still need to withdraw your production or other administrative costs too.

Contact form submissions

You need to download a conversion code from the AdWords interface and set it up on your website in order to track conversions from contact forms submissions. Please be aware that a common mistake is to set the tracking code on the contact form page. If you do this you will actually count as conversion any visit on your contact page, whether people actually send the contact form or not. So any visit on your contact form with no form being sent will still be counted as a conversion. The right way to track leads coming from contact forms being sent is to create a new “Thank You” page on your website where people are redirected to after effectively sending the contact form, and to install the tracking code on that Thank You page.

Then again you will need to decide how much a contact form submission is worth to your business. If you get one qualified lead for every 5 contact forms, and this leads bring you €200 average in revenue, then any cost per conversion up to €40 is profitable. But again you have to also take into consideration the time spent to analyse those leads, are you paying someone to do this etc.

Brochure downloads or newsletter subscriptions

You also need to download and set up a code on your website to track brochure or other material downloads. You need to be cautious and create a separate “Thank You” page people are redirected to after the download, to track downloads accurately and not track every single visit on the download page with no actual download.

Again you need to determine what is the worth of a document download to your business? Are you asking people their email address when they download your documents? Are those potential customers email addresses precious to your business? Are you planning on setting up an email marketing campaign soon?

Micro conversions

Some other actions might also be very important for your business, even though they don’t bring direct conversions, like key page views, bounce rate, time spent on website, etc. Those actions can be tracked by setting goals in Google Analytics.

Imagine you just released a new product and you want people to be aware of it. If you see that the number of people who viewed this product page or that the average time spent on your website increased since its release, it is a good indicator that your marketing campaign is working.

Last things to consider

There are different stages in a consumer buying process, and people might click on your ads several times before buying things (this process might even be longer for high involvement decision products, such as a car for example). There are different attribution models in AdWords, which mean you can choose the credit to give to each click for your conversion. Default model is the last click one but we wouldn’t recommend you to choose that one as it is a bit obsolete and the initial clicks that led to your ads are as important. The other attribution models are:

  • First click: gives all credit to first click
  • Linear: distributes credit equally to all clicks
  • Time decay: gives more credit to clicks that appear closer in time to the conversion
  • Position-based: gives 40% credit to both first and last clicks, and remaining 20% spread across other clicks
  • Data-driven: distributes credit based on past data for the conversion action (your account needs to have at least 15000 clicks and 600 conversions for the last 30 days)

If you own the type of business that sells products or services that people might end up buying more than once, it is important to also consider lifetime customer value when you decide the worth of a conversion to your business.

Imagine you own a car garage and a new customer is so happy with your service that he will come back to you every time he needs to service his car, plus he will also recommend you to all his friends nearby who own cars. This customer is probably worth 10 times your average conversion.

Finally, while PPC is all about conversions, be they leads or sales, be aware that there is an inherent and often incalculable intangible benefit in terms of visibility and awareness that comes with ad AdWords impression, even if the prospect does not click through to the site. At the very least they become aware that you offer that product or service, depending on what they search for. Similarly, if they do click on through to the site and don’t convert, they are now even more familiar with your brand and you also may gain the ability to target them via a remarketing campaign.

Thus, it is important not to judge PPC solely on the volume of leads or sales, but also to recognise some of the more intangible benefits of visibility and site traffic.

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RICHARD TALBOT Head of Paid Search

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An experienced digital marketer with 8+ years of industry experience, Richard has worked in client account management at both Google AdWords and Microsoft's Bing Ads in Dublin. He now leads the Paid Search & Display Advertising team at Tinderpoint delivering successful campaigns for a portfolio of diverse national and international clients across many industries.