About return on investment (ROI)
Whether you use Google Ads to increase sales, generate leads, or drive other valuable customer activity, it’s a good idea to measure your return on investment (ROI). Knowing your ROI helps you evaluate whether the money you’re spending on Google Ads is going to a good cause: healthy profits for your business.
How ROI Works
ROI is the ratio of your net profit to your costs. It’s typically the most important measurement for an advertiser because it’s based on your specific advertising goals and shows the real effect your advertising efforts have on your business. The exact method you use to calculate ROI depends upon the goals of your campaign.
One way to define ROI is:
(Revenue – Cost of goods sold) / Cost of goods sold
Let’s say you have a product that costs $100 to produce, and sells for $200. You sell 6 of these products as a result of advertising them on Google Ads, so your total cost is $600 and your total sales is $1200. Let’s say your Google Ads costs are $200, for a total cost of $800. Your ROI is:
($1200 – $800) / $800
= $400 / $800
In this example, you’re earning a 50% return on investment. For every $1 you spend, you get $1.50 back.
For physical products, the cost of goods sold is equal to the manufacturing cost of all the items you sold plus your advertising costs, and your revenue is how much you made from selling those products. The amount you spend for each sale is known as cost per conversion.
If your business generates leads, the cost of goods sold is just your advertising costs, and your revenue is the amount you make on a typical lead. For example, if you typically make 1 sale for every 10 leads, and your typical sale is $20, then each lead generates $2 in revenue on average. The amount it costs you to get a lead is known as cost per action (CPA).
Why ROI matters
By calculating your ROI, you can find out how much money you’ve made by advertising with Google Ads. You can also use ROI to help you decide how to spend your budget. For example, if you find that a certain campaign is generating a higher ROI than others, you can apply more of your budget to the successful campaign and less money to campaigns that aren’t performing well. You can also use ROI data to try to improve the performance of the less successful campaigns.
Use conversions to measure ROI
To identify your ROI, you first need to measure conversions, which are customer actions that you believe are valuable, such as purchases, signups, web page visits, or leads. In Google Ads, you can use the free conversion tracking tool to help track how many clicks lead to conversions. Conversion tracking can also help you determine the profitability of a keyword or ad, and track conversion rates and costs-per-conversion.
Measure traffic to your website
If your main advertising objective is to increase traffic to your site, try focusing on increasing your clicks and clickthrough rate (CTR). Start by creating great ad text and strong keywords to make ads that are highly relevant and very compelling to your customers, then closely monitor your clicks, CTR, keywords, and search terms.
Why worry about the relationship between ad text and keywords? Think of a rowboat and an oar, and the way that they work together to reach a destination. Good keywords can steer a tightly connected ad towards the right customers, boosting your clicks and CTR.
In Google Ads, you can also create a campaign using the Website traffic goal, which recommends settings and features to help you drive interested customers to your website. Using this campaign goal, you can build a list of site visitors you can reconnect with later. Learn more about goals in the new Google Ads experience.
What to measure
Here are some important things you can measure to help you track and improve a campaign that’s focused on traffic:
- Clicks and clickthrough rate (CTR): These 2 metrics help you understand how many people found your ad compelling enough to actually click on it and visit your website. You can measure clicks and CTR at all levels of your account. For example, you can see how many clicks an entire campaign, ad group, or ad received, or you can see how many clicks individual keywords have generated after triggering your ads. On the Search Network, a good CTR is generally considered to be 1% or higher.
- Keywords: Keep a close eye on keyword performance with these strategies:
- Update your keyword lists regularly. Pause or remove the words that aren’t working well for you (for example, if they have CTRs below 1%, or low Quality Scores) and add new ones. Learn how to Measure your keyword performance on the Search Network.
- Use the 4 keyword matching options to help control who sees your ads. With some options, you’ll enjoy more ad impressions, clicks, and conversions. With others, you’ll get fewer impressions and more narrow targeting.
- For a comprehensive view of keyword quality, run a keyword diagnosis. It gives you information about your keywords’ Quality Scores and whether they’re triggering your ads. A Quality Score of 5 or higher is generally considered good.
- Search terms: When you use broad-match keywords (the default setting), your ads can appear when someone searches for a variation of your keyword, like a similar phrase or related word. To see a list of searches that have triggered your ad, use the Search terms report. You can use this report to identify relevant terms that are driving traffic to your website, and then add them as new keywords. Or, if any of the keywords are irrelevant to your business, you can add them as negative keywords so they won’t trigger your ads.
- For example, if your campaign has the keyword digital cameras on broad match, the report may show that your ads appeared for the search query “digital cameras London.” If your business sells to people in London, you could add this phrase as a keyword in your account. If you don’t serve London, you could add London as a negative keyword to make sure your ad stops appearing on that search. By adding irrelevant search terms as negative keywords, you can help improve your clickthrough rate.
What to measure for brand awareness
Here are some important metrics that show whether your branding campaign is successful:
- Impressions: Impressions are important to track in any campaign, no matter what your goals are. But they can be especially important in branding campaigns, because they represent how many customers actually laid eyes on your ad. You might not care whether they ended up buying anything from your site, but you do want them to remember that catchy new slogan you paid big bucks to develop and share with the world.One way to really prioritize impressions is to create a cost-per-thousand impressions campaign (rather than a cost-per-click campaign). That way you’ll pay based on the number of impressions your ads have received, rather than by the number of clicks they’ve gotten.
- Customer engagement: If you’re focused on branding, you can use clickthrough rate (CTR) to measure customer engagement for Search Network ads. On the Display Network, though, user behavior is different, and CTR isn’t as helpful. That’s because customers on sites are browsing through information, not searching with keywords. Also, on a busy Display Network page, an ad has to compete more to get the attention of a reader than it would on a search page. It’s more important to try to achieve a good CTR on the Search Network (1% or higher) than on the Display Network, where clickthrough rates are frequently lower. You may want to consider other measurements like conversions for Display Network ads.Conversions can help you see whether your ads are driving branding-related visitor behavior you think is valuable, such as sign-ups or page views. After all, aren’t you curious how many people join your mailing list after watching that expensive video ad your company just created?
- Reach and frequency: Reach is the number of visitors exposed to an ad. Increased reach means that an ad is exposed to more potential customers, which may lead to increased awareness. Frequency is the average number of times a visitor was exposed to an ad over a period of time.
Key performance metrics
Here are a few of the most common metrics for Search campaigns, in the order in which users interact with your ads. Conversions are one of the most important metrics because they allow you to measure what’s valuable to your business.
- Impressions (Impr.): Each time your ad shows on a search results page or other site on the Google Network, an impression is counted. Impressions are most important if your goal is to raise brand awareness.
- Clicks: When someone clicks your ad, a click is counted. Clicks can help you understand how well your ad appeals to people who see it. Relevant ads are more likely to receive clicks.
- Click-through rate (CTR): Your CTR shows the percentage of people who end up clicking your ad after seeing it. A good CTR will be different depending on the product or service you’re advertising, as well as the network on which your ads appear. To boost your CTR, focus on crafting compelling ad text that’s highly relevant to your keywords. Learn how to write successful text ads.
- Phone calls: When someone using a mobile-device clicks or dials the phone number on your ad, a phone call is counted. This metric is only available if you set up a call feature such as call extensions, location extensions, or call-only ads. You must also enable call reporting.
- Conversions: When someone interacts with your ad and then takes an action that you’ve specified, a conversion is counted. Conversions can include anything from purchases and sign ups to calls to your business. You define what counts as a conversion when you set up conversion tracking. To see how many different conversions you received, segment your data table by conversion action. You can also view additional actions such as:
- Call from ads: Number of calls from ads (for which you’ve set up a call feature) that last longer than a duration you specify.
- Local actions conversions: Counted whenever someone completes an action that’s related to your business’ physical location. These actions include:
- Local actions – Directions: Clicks on the “Get directions” button.
- Local actions – Website visits: Clicks on the website link.
- Local actions – Menu views: Clicks on the menu link.
- Clicks to call: Clicks on the “Call” button. This metric is different than “Call from ads” because it only counts calls from a location-based ad or service. Keep mind, “Clicks to call” includes calls of any duration.
- Cost: Amount you’ve spent during the time period you’re looking at.
- Average cost-per-click (Avg. CPC): The average cost of one ad clicks. It’s the cost of your ad divided by total clicks.
Using a Search Term Rreport: How it works
The search terms report is a list of search terms that a significant number of people have used, and that resulted in your ad being shown. Depending on your keyword matching options, the search terms listed might be different from your keyword list.
The “Match type” column tells you how closely the search terms that triggered your ads on Google are related to the actual keywords in your account. By seeing which match types are working well for which keywords and searches, you can refine match types for all your keywords so that only the right searches cause your ad to show. The “Keyword” column tells you which of your keywords matched someone’s search term and triggered your ad. This column does not show by default. To learn how to modify columns, skip to View the search terms report.
How search term match type is determined
To help you understand how the search term match type is determined, we’ll use the following example:
|Ad group A||Exact match keyword [purple flowers]|
|Ad group B||Phrase match keyword “purple flowers”|
|Ad group C||Broad match keyword purple flowers|
Keeping these ad groups and keywords in mind, we’ll use the following table to show you how different search terms that triggered your ads on Google are related to your keywords. Note that when the search term match type is a close variation it will be indicated in the “Match type” column. Close variants can include misspellings, singular and plural forms, acronyms, stem words (such as floor and flooring), abbreviations, accents, and variants of your keyword terms that have the same meaning.
Keep in mind that a search term match type listed in your report might not be the same as the match type you’ve selected for the keyword that triggered the ads. This is because keywords with broader match types can still match search terms in narrower ways. For example, if someone searched for purple flowers, and your broad match keyword purple flowers triggered your ad, the search terms match type would be the exact match, even though in your ad group, purple flowers is a broad match keyword.The performance metrics on the search terms report may differ from the data in other Google Ads reports, since it reports traffic for queries that meet Google’s privacy thresholds.
|Your keyword||Customer’s search term||Search term match type||Reason for search term match type|
|[purple flowers]||purple flowers||Exact match||The search term exactly matches your exact match keyword from ad group A.|
|[purple flowers]||purple flowrs||Exact match (close variant)||The search term is a close variant (same meaning and intent) of your exact match keyword from ad group A.|
|“purple flowers”||purple flowers||Exact match||The search term exactly matches your phrase match keyword from ad group B.|
|“purple flowers”||free purple flowers||Phrase match||The search term contains your phrase match keyword from ad group B.|
|“purple flowers”||free purple flowrs||Phrase match (close variant)||The search term is a close variant (same meaning and intent) of your phrase match keyword from ad group B.|
|purple flowers||purple flowers||Exact match||The search term exactly matches your broad match keyword from ad group C.|
|purple flowers||free purple flowers||Phrase match||The search term contains your broad match keyword from ad group C.|
|purple flowers||pink flowers||Broad match||The search term is a variation of your broad match keyword from ad group C.|
Note: Dynamic Search Ads and Shopping targeting do not use keywords. In the search terms report, any terms matched to dynamic search ads or shopping targets will not return a keyword in the keywords field and they will return ‘Exact’ in the match type field.
Manage your keywords based on search terms data
Use your search terms data to make changes to your keywords that can have a positive impact on your performance. Here are some ideas:
- If a search term isn’t relevant enough to the products or services you offer, add it as a negative keyword. This will help keep your ad from showing to people who are looking for something you don’t sell. For example, if you sell eyeglasses, and you see that the search term “wine glasses” is triggering your ads, you might want to add “wine” as a negative keyword.
- Edit your match type (e.g. broad, phrase, exact, or negative) for existing keywords. The “Match type” column can help you understand how keyword match type is affecting your ad performance.
- We recommend using Smart Bidding. However, if you use manual bidding, you can add high performing search terms to your ad groups as keywords. Consider adjusting your bids as well, since search terms appearing in the search terms report are already receiving traffic.