AdSense/AdWords ROI analysis

Does this make sense?

[Nick Jachelson]

My AdSense average eCPM is $4.00. That means I make $0.004 from each impression. So naturally I figured there is no way I could earn enough money to make up for paying the minimum of $0.03 per click for AdWords. That is, until I saw that my AdWords visitors view a whopping 14 pages/visit for some targeted keywords, 7 times more than my normal visitors. No wonder I make most of my money in the early morning when my AdWords ads show.

Therefore 14 x $0.004 = $0.056. ($0.056 - $0.030)/$0.056 = 46% ROI.

This sounds too good to be true. If I invest $100 this month, I will get back $146. After a year of reinvesting, I will be making $9,000 a month!

Obviously I'm going to run up against a wall at some point where I would have to pay more than $0.056 per click to get any more clicks. What else am I missing?

[ve3cnu]

Here the math I use:

Cost for advertising (in $)
divided by
Cost per click (in $)
=Number of visitors inbound to my site
x
CTR on ads on my site (in %)
=Number of Clicks away from my site
x
Earning per click
=Revenue generated from acquired visitors
minus
Cost for advertising
=Profit (Loss if negative) for my site

So, for example:

$10 spent for Adwords
divided by
0.05$ CPC
=200 visitors to my site
x
3% click-through-rate
=6 clicks away from my site
x
0.30 average revenue per click
=1.80 earnings from Adsense
minus
10.00 cost for Adwords
=-8.20 Profit/Loss

in this example it does NOT pay to use Adwords.