ROI
Most businesses find it difficult to know exactly what their ad budgets bring in sales. Online advertising makes it easy, or at least much less painful, to know your Return on Investment with precision.
Not setting up this reporting is almost unthinkable unless you like to throw money away. We’ll get into how to use this data at the end of this post.
ROI Basics
The formula for caclulating ROI is:
ROI = [(Revenue - Investment)/Investment] x 100
For example, you spend $5,000 on advertising and it generates $20,000 in sales. Your ROI is:
ROI = [($20,000 - $5,000)/$5,000] x 100
ROI = 300%
One important note is that 300% ROI may be good or bad depending on your profit margins. In this example, if your total cost to sell $20,000 of goods was $17,000 and you spent $5,000 on ads, you’re in the red. To prove your ads are good for business, just rerun the above formula using Profit rather than Revenue.
ROI on Adwords campaigns is easy. Just turn on Autotagging in Adwords. Then, in Analytics, navigate to Traffic Sources > Adwords > Adwords Campaigns. Click the “Clicks” Tab.
ROI For Other Sources
While Google Analytics won’t report ROI for non-Adwords sources, you can still figure out ROI. Let’s say you want to advertise on Facebook. The first thing to do is to generate a custom URL for your ad. The extra data in the URL will pass along campaign information to Analytics. Visit http://www.google.com/support/googleanalytics/bin/answer.py?answer=55578 and fill out all applicable fields, as shown below. Great, now create your ad so that clicks use this URL. Finally, in Google Analytics, check Traffic Sources > Campaigns. You’ll see revenue for each of your campaigns. You can even drill down to view keywords, sources, and more. Again, Google Analytics will only provide you with revenue per campaign. To find cost data, you’ll have to check with Facebook, Yahoo, Bing, etc. Here’s an example of Facebook cost reporting: Once you have cost reports, just line up the same date range in Analytics and run through the ROI calculation.
Why Do All This?
The simple reason is: to make the most money you can! Take a look at the ROI on two separate ad campaigns. For every dollar you’re spending on this Yahoo! campaign, you could be making two additional dollars by converting the budget to Facebook. If your Yahoo! campaign is $3,000 per month, you make an additional $6,000 by transferring that budget to your Facebook campaign.
