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Pay Per Click Engines Forum

How to calculate ROI and others
ROI calculations

 5:34 pm on May 19, 2003 (gmt 0)

I am new to the boards so if I am I not practicing the proper etiquette please let me know.

I have been using many PPC sites for the past few months but have never calculated ROI or the others (I think they are CPC and CPM...?)

Is there a simple formula that I can follow along with maybe a rule of thumb?

What ever anyone can offer would be greatly appreciated.



jeremy goodrich

 5:38 pm on May 19, 2003 (gmt 0)

Welcome to WebmasterWorld!

Track your PPC stuff preferably using a variable like /?source=adwords or /?source=overture

Then once you have that down, compare the cost of the traffic with the amount of $$$ made through sales from that traffic.

The best way, imho, is to track by source so you can get the best ROI from each campaign.


 5:50 pm on May 19, 2003 (gmt 0)

OK, so far I understand. If I have 6 different PPC site going at any give time, and add the "/?source=adwords or /?source=overture" type of extension I can then see what each site brings into me. I can then calculate the amount of traffic each site brings in, compare that to my sales and determine what my ROI is. Is that correct?


 6:27 pm on May 19, 2003 (gmt 0)

with the amount of $$$ made through sales from that traffic.

This is hard to pinpoint using just a web log. Traffic is easy to measure, but isolating sales as a direct result from a pay-per-click engine is more difficult. How does one know if the sale is a result from a free search engine referral or a pay-per-click?

You need to capture the initial referral URL when a buyer first visits your site. I use a custom JavaScript to forward the referral URL with the order. If the buyer is from from AdWords or Overture, the referral URL will have the /?source=adwords or /?source=overture in it. It is not perfect as buyers need to have JavaScript and cookies enabled, but I think it is a more accurate measure than web log traffic.

jeremy goodrich

 6:35 pm on May 19, 2003 (gmt 0)

Best way is to add a cookie & a session variable both to the clients computer that arrives at your site, based on both the keyword & the source.

That way, you can analyze keyword(s) value as well as PPC campaign value. There are some softwares you can buy / install to make this work for you, instead of developing it yourself.


 6:37 pm on May 19, 2003 (gmt 0)

You can sign up for services that do this extremely well (track each phrase on each engine and give you pretty reports), but if your trying to save some money by avoiding monthly fees you could always pick up a cheap affiliate tracking software package and set up different affiliate urls for different ppc engines (or for different phrases on each engine).


 7:39 pm on May 19, 2003 (gmt 0)

All of the responses are very helpful. I understand what everyone is saying but implemting some of the java scripts etc...is beyond my skill...right now anyway.

Can anyone recommend specific programs (maybe something I can find on KaZaa (to help with costs :) ). Is all of this extra work benefical?

jeremy goodrich

 7:55 pm on May 19, 2003 (gmt 0)

Well, all of the 'extra work' is *very* necessary to calculate your ROI.

After all, depending on your budget, some keywords may or may not cost you a lot of money.

Fact is, you can measure exactly what value that money you are already spending is bringing to your business. From there, it is very simple to make the decision -> is this media buy worth it? Or not?

Any time you advertise, if you have an idea what to expect, it helps business planning immensely if you know what to expect from your purchase. Knowing what to expect can help you plan your budget, and either increase the spend (if it's working) or stop wasting money (as you could be) and look for other channels with which to generate targeted leads & sales.


 8:40 pm on May 19, 2003 (gmt 0)

If you can figure out your conversion ratio with tracking, and you know your profit per sale, you could theoretically determine exact ROI from a ppc campaign's online conversions.

Lets say you have determined a product you are bidding on a keyword for has a conversion ratio of 1%, or 1 out of 100 people buy after a clickthrough from that given keyword.

Your know your profit per item is $50.

You would break even paying 50 cents a click, because 50 cents times 100 clicks = $50.

You would be in the profit margin if you could get the keyword for below 50 cents a click.

jeremy goodrich

 8:50 pm on May 19, 2003 (gmt 0)

Yes, that is true.

However, say you are bidding on Overture & Adwords, as many people do. What if you budget was split evenly between them?

But, Overture drove 2 times as many sales as Adwords drove. Entirely possible, and given the different demographics of the people searching, not too far afield.

Wouldn't it be better to know that very valuable bit of information, so that you could increase your Overture budget? Or, change the keyword / copy strategy for adwords until the ROI was the same or similar? If it was even possible.

The point is, if you are spending *a lot* you can't afford to ignore the tools that are available to enhance your ROI. As ecommerce gets to be a bigger picture of the general spend in the USA, more & more companies will start to allocate their marketing budgets accordingly.

If you don't take advantage of something that will make you extra money how do you *know* your competition will NOT make that decision?

Would you bet your business on it?

I know I wouldn't.

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