Measuring your online performance - the all-important Return metric

by Mike on September 23, 2009

You’ve made the decision to jump (or at least dip a toe) into the waters of Search Marketing, either through Pay-Per-Click (PPC) or a comparison shopping engine (CSE) program.  You have your keyword list ready and feed sent off to your shopping engine of choice.  The campaigns launch and your products are now in front of millions!

Once the orders start coming in and revenue is being generated, the question now is, how do I know if this thing is working for me on a financial level?

The answer is that you should have an idea on this even before the first visitor hits the site.

One of the great aspects of advertising online through either PPC or a CSE, is the ability to accurately track performance.  So before devoting time and money to an online campaign, one should make a decision on the specific goals of the endeavor.  While all businesses have different P&L (profit and loss) models, overhead costs, etc., the one metric most all have an interest in ultimately,  is Return.

This metric can be looked at in a few different ways, most often through either Return on Ad Spend (ROAS) or Return on Investment (ROI) calculations.

ROAS can be measured simply as Total Revenue divided by Total Ad Cost.

In this scenario, if you spent $100 on an AdWords or CSE campaign and made $500 in revenue, your ROAS is $5 (or 5x).

ROI can be measured in much the same way, with a few new variables added to the equation.

On the Revenue side, one would likely subtract Tax and Shipping income, while on the Ad Cost side, items such as profit margin and management fee (when using an agency to manage the campaign) can be taken into account.  ROI then, is typically a better indicator of the true profitability of an online campaign.

The image below provides a good estimate, based on product-level margin, what type of ROAS one would need to see for profit at an ROI level.

Either way you slice it, the Return metric is one that every advertiser should consider before marketing online and once out there, calculate correctly to  effectively assess campaign performance.

chart

  • Thanks for sharing,users understand easily with diagrams not with test,..this has been proved by so many scientist i.e pictorial representation can be remembered for a long time period,ecommerce web developers ecommerce development company

  • Hi This one is great and is really a good post . I think it will help me a lot in the related stuff and is very much useful for me.Very well written I appreciate & must say good job..

Previous post:

Next post: