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The formula I currently use is simple: ROI=(income/cost)*100
This shows an ROI of zero where there are no clicks and no sales (no cost, no income). That's fine but is also shows an ROI of zero where there is a cost but no income.
How can I change the formula to show a negative number where the expense is greater than the income?
Break Even Calculator [connection.cwru.edu]
Paul, that was spot-on. Many thanks.
However, I would like my ROI figure to distinuish the level of loss so that the lower the return the lower the ROI just as there's no limit on the positive ROI.
Any suggestions how I could achieve that?
Fathom, thank you but that was rather more complicated than I needed. I have no fixed costs to consider.
Paul, that was spot-on. Many thanks.
hmmm... everything has fixed costs? The time it takes to calculate ROI costs something.
The calculator provided will should a negative return > in visual graphical form as well as a printable table along with with time to breakeven and ROI or losses.
You can input zero for fixed costs.
Paul's formula is the correct one.
I don't necessarilly need an 'ROI' expressed as a percentage but rather as a ratio. It is important for me to have a figure which reflects the loss as much as the profit. For example, an income of $100 with an cost of $10 would have a positive ROI to the same degree that an income of $10 and a cost of $100 would have a negative ROI.
Is that any clearer?
Does that help?
Remember I'm talking in the context of PPC here. If you spend $10 advertising product A during period x and get nothing back you may decide to start lowering your bid in the expectation that, at a low enough bid level you may start to see a decent return at some point in the future. If you spend $20 on product B during the same period x and get nothing back you may again decide to keep advertising but realise that you're probably better off advertising product B at a lower rate than A because you can't afford for the rate of loss to continue at the same rate even though you still expect to make a profit at some stage.
Yes, I can only lose 100% of my money in absolute terms but in relative terms there's a difference to me losing $10 or $100. I would like to create a formula which relates the recommended drop in bid level to the level of loss.
Start with the lowest possible bid to get listed, minimizing the "net loss" per click.
If you are still losing money rather than gaining ROI, the problem is elsewhere.
So, let's say you don't start getting any traffic until you hit the $0.25 level at which point you get an ROI of 220% for the month of April. Then, in May, you make no sales. Do you lower your bid level to the minimum again or gradually start decreasing it? I'm referring here to a product or service which has a seasonal market.
This way if you get 5 clicks in a day for a month and no purchases in all likelihood you have identified another problem.
Planning and measurement is very important to any marketing, promotion and/or sales strategy Dorian but a "net loss" calculation seems to be focusing on the wrong side of the equation.
I would bet that one of these three conditions apply if you are spending more than you are making:
1. Poorly chosen phrases are being used to produce trafffic with limited interest buying (e.g. -- "computer pentium 4" is unlikely to produce a sale since a region isn't indicated and most would be unwilling to pay shipping cross-continential)
2. The website's inability to engage the visitor to buy is not there.
3. Time to purchase - a click today does not mean a buy today but also doesn't mean a non-purchaser either. It's interesting to note that the lag time for most of the buying public is 3 days to 3 weeks (market dependent) to return to a website to make a purchase after the initial "informative investigation".
Thus a specific PPC campaign measurement may need to be +3 weeks past the last expenditures.
As far as seasonal norms > predetermine a start and stop date based on historical data (if available and if not start to develop that data archive). Peak season > higher bids, shoulder seasons > lower bids and off-season > no bids.
Regardless market understanding is a necessity.
As you note their is a significant time-lapse between advertising and sales. That means there may be a period of negative ROI which you would deem acceptable. Still, you'd only want this negative ROI to continue up to a point after which time you'd probably want to lower your bids again.
Of course if you've only got a few products and a few terms you'll review this all manually. If you've got hundreds of products and thousands of terms its a different matter and you would most likely want a system for calculating the bids in relation to what you have spent.
With regards 'seasonaility' that's just one issue. There are many other factors overlaying seasonaility. For example, the market for ice-cream may predominantly be in the summer but if a major ice-cream company runs a campaign in spring you'd benefit from advertising at the same time.
By stemming all advertising in what you traditionally to believe to be low season is quite drastic. And vice-versa. I don't want to be selling trips to Hong-Kong right now even though its traditionally a busy season.
