If you are using AdWords on a regular basis, we hope you are in the position of getting a good number of visitors to your site and that those visitors are sticking and taking beneficial actions their. (If not, read our posts on maximising visitors and maximising revenue)
But are you actually profitable?
Moreover, how do you decide how much money you should be spending on each of your campaigns in AdWords to maximise your ROI?
Equally, maybe you’re in a position where actually AdWords is not working well for you. In some industries, relevant keywords can cost well above £30 per click for search ads – not a good candidate for a profitable AdWords campaign!
In this post, we will be sharing some tit bits we have picked up during our years in the industry, on ways you can increase your return through careful analysis of your AdWords performance. We’ll also be sharing information on some of the other advertising channels, aside from AdWords that have historically proved profitable for us.
But first things first…
Are you actually making money from AdWords?
To determine this, two important metrics you are going to want to focus on are:
- Your Cost per Acquisition (CPA)
- Your Return on Ad Spend (ROAS – using customised columns)
Click on the image to see the full version of the cheat sheet in a new tab that you can print or save
Definition: The amount you have paid on AdWords (on clicks on your ads) in order to attain a conversion on your website.
Mathematically it is:
So the more clicks that don’t result in a conversion, the higher your CPA.
Before assessing the values in your CPA column, it’s essential to first work out what your CPA should be in order to ensure you are profitable.
Your CPA will vary depending on the value of the product you sell (generally the more expensive, the higher the CPA) and the lifetime value of your customer. You need to think about how much you are willing to spend in order to acquire a new customer.
There is no strict formula for working out your CPA, but as a rule of thumb we recommend the following to our clients:
Look back at your AdWords data from a previous period (needs to be over a decent period like 3 months to a year) and determine the average revenue (or basket value) you made per customer for each of your campaigns or products.
Using the average margin from this product, work out the total profit you made per sale of this product.
From here there is no concrete rule for working out what your CPA should be as this will depend on a number of factors relating to your business, such as any overhead costs. A good rule of thumb, however, is to allocate 15-20% of the the average profit per sale to acquisition costs.
So now you know what your CPAs should be, what do you do if your CPA is too high for a campaign?
It’s important make sure you have taken into account the full value that campaign is bringing to your business both on and offline.
To do this you need to think about not just the direct revenue that that campaign is bringing in for itself but also any additional revenue it may have afforded your company through other means.
Multichannel report – Assisted Conversion Data
When someone visits your site and converts, that conversion is very often credited to the last action that visitor took. For example, if someone visits your website from a Facebook ad and converted then and there, the conversion would be matched to the Facebook ad.
However, most conversion don’t happen during the first visit to your site, more often your customer will visit your site on multiple occasions, through multiple channels, as they research the product or service they are considering purchasing.
The multichannel report in analytics shows you how your channels work together to drive sales on your website.
When a converted click on one of your ads is not the first or last interaction your customer has with your business, it is called an assisted conversion.
It is therefore vital that when looking at the profitability of a campaign on AdWords that you consider not only that campaigns direct conversion, but also its assisted conversions.
By combining the direct and assisted conversions associated with each campaign, you will be able to work out an adjusted CPA for that campaign:
This adjusted CPA will be lower than your original CPA.
Now look at your CPA again. Still too high? Now consider:
Conversions from your LANDING PAGE
We recently had a situation where the CPA for one of our shopping campaigns was too high. We knew we needed to assess the profitability of each of our products and then cut the weakest performing ones from the shopping campaign and prioritise the best.
In analytics we were able to determine the revenue brought in from each product in the shopping campaign by first looking at the product performance reports. We then determined the profit we had made from sales of these products, taking into account the cost of clicks to these products in the shopping campaign.
This produced a neat list of products that we were making profits and losses on. Problem solved right?…Well, not quite…
When a number of our client’s big selling product brands came out has having made a loss, we knew we needed to look into it further.
What if a click on product A didn’t result in the purchase of product A but frequently resulted in the purchase of product B instead? Or a click on product A frequently resulted in the purchase of product C alongside product A? Culling product A would therefore be detrimental to the performance of product B.
Looking at the revenue that each product was spending and returning was too limited. We needed to think about what revenue the landing page was bringing into the company. Thankfully there is a really cool way of seeing this in analytics.
You may be used to segmenting your data in Google Analytics by paid traffic, organic traffic, referral traffic etc. However, it’s also possible to create custom segments in analytics.
From here you can choose to segment your data by a number of different options. For what we needed, we segmented our data by the conditions landing page and also campaign.
Taking this view, we could see all the revenue associated with a customer landing on a particular page. It gave us some great insights into what products were being frequently bought alongside or in place of other products.
In this example, clicks through to the landing page of product A only resulted in the purchase of product A 34.59% of the time garnering £172.95 for the company. However, another £327.05 was also generated through initially landing on this page, when customers then went on to buy other products. This landing page was therefore worth a lot more to the company that initially supposed in our primary estimates.
Whilst it was fairly time consuming to work through each of our product losses in this way, viewing our data through these segments gave us valuable insight into how each product contributed to our overall revenue figures, allowing us to be more confident in which products we should cut and keep in our shopping campaign. We found that several products that appeared to have high CPAs, didn’t actually didn’t take into account the additional value that that product was bringing in.
CPA still high? Consider:
As well as looking at your data from the two perspectives above, its worth thinking about any conversions that have occurred as a result of your paid advertising that you are not tracking i.e. calls to your business or visits to your store front.
Whilst these aren’t the simplest to track it’s something you do need to think about before cutting campaigns with high CPAs that might be driving results offline.
If your business gets a high number of calls, it also might be worth implementing some call tracking software to monitor which avenue’s are driving positive leads from calls.
Accounting for all conversions that occur as a result of your paid activity, if you’re CPAs are still high, you have one of two options:
- Try to increase the number of conversions you achieve for a comparable cost. This can be successfully done through introducing more benefits to customers for choosing you over the competition such as offers and other incentives.
- Removing keywords, ad groups or campaigns from your account which are spending lots and returning little and focusing that money on your better performing campaigns.
2. Return on Ad Spend (ROAS)
Definition: The total revenue generated for a specific marketing channel divided by the total spend on that vertical.
Mathematically ROAS is:
ROAS is written £X:1 stating for every £1 spend you got £X back as revenue.
Your return on ad spend is really the compliment of your cost per acquisition. Whilst one focuses on the amount you spend to acquire a conversion, the other tells you the amount you receive back in return for that spend.
Unlike the other metrics we have spoken amount, to view this metric in AdWords you will need to create a customise column.
We’ve shown you how to do this for ROAS in the images below.
ROAS is an incredibly underrated metric on AdWords but its hugely useful, especially when combined with your CPA goals. Taking into account both your ROAS and your CPA will give you a more comprehensive picture of how your PPC campaigns are performing.
For instance, if you have a low CPA and a low ROAS then this suggests that you are generating lots of low revenue conversions (selling lots of products with bad margins).
In this instance it’s best to look at places in your account where you can ‘trim the fat’; cutting spend from your products that are giving you the lowest return and focusing on the products that give you more.
Alternatively, if you have a high CPA and a high ROAS then the you are generating good quality conversions but at a high cost each time. In this instance it’s best to focus your efforts on generating more conversions by incentivising customers to buy these high return products in preference to the low return products.
Caveat: ROAS is only a useful metric when combined with the profit you make from that product. For example, you may have two products, one with an amazing ROAS of 20:1 and another with a ROAS of 4:1. However, the first product is not as popular and so has spent only £1 in click costs to gain £19 back in profit, whereas the second product is more regularly searched for spending £100 but generating £300 back in profit.
3. Other Advertising Channels
We’ve almost reached the end of out blog series on using the AdWords database to critically assess and hopefully improve your performance.
But what if you’ve got this far and AdWords just isn’t working for your business?
We’ve had clients approach us, where the competitive nature of their industry means that the cost of a click on google is almost £40 a piece. If you don’t believe me, check out the top 20 most expensive keywords on Google from Wordstream.
In this instance, Google AdWords is not going to be the place to advertise.
But there is no need to despair! If traditional AdWords campaigns fail you, there are plenty of other avenues to explore.
Three that we would recommend initially are:
- Shopping Campaigns (ok, still technically AdWords)
- Native Advertising
- Facebook Ads
We’ll focus more on Native and Facebook but if you are an e-commerce site you can find helpful information about setting up Shopping campaigns here.
There are several similarities between advertising on Facebook and Google AdWords since both channels work on a pay-per-click basis.
Some unique benefits to Facebook lie in its ability to uniquely target highly specific audiences. The possibilities are endless!
Do you sell wedding dresses or wedding rings? Target people who have recently said they are engaged.
Do you sell products for babies? Target parents with children between the ages of 0-12 month or 1-2 years.
Do you sell furniture? Target people who have just bought a new house or people who have a home value over a certain threshold.
Do you sell video games? Target people who have accessed Facebook from their games console and played a game in the last 14 days.
Do you sell flowers, jewellery, or other gifts? Reach out to people with an upcoming anniversary
Facebook also allows you layer these demographics to create custom audiences built for you, letting you layer life events with geographic location, age, salary, relationship status etc.
A further benefit of using Facebook is the increased session times on the platform compared to on SERP. Much longer session time, gives a greater ability for just the impressions of your ads to drive a stronger brand awareness.
For more information on the pros and cons of Facebook advertising, there are a series of great posts by Wordstream.
What are they?
Native ads are ads which are directly inserted into the content stream of a webpage making the adverting experience seamless. Their appearance as additional content leads to much higher click-through rates (historically 3 x greater than traditional banner or display ads).
Native advertising space can be purchased through a DSP (demand-side platform) which allows advertisers to purchase advertising space on websites which are not part of the Google Display Network.
The price the advertiser pays for the space is determined by real-time bidding (RTB) in a similar fashion to what takes place in AdWords and with prices comparable to those paid per click on the Display Network. This makes it possible to now advertise on places on the internet that used to be prohibitively expensive.
Native advertising is different to traditional PPC advertising because its often a lot more content rich.
White has just introduced it’s very own DSP called White Exchange – watch this space for more information.
We hope you’ve enjoyed our beginners guide to managing AdWords series. Moreover, we hope that the cheat sheets and guides have been useful for your day to day handling of AdWords. It takes time to get AdWords management down to a fine art, and all the while your account will constantly evolve and change! Such fun!
We’d love to hear any comments, questions or queries you have about the series so feel free to leave your feedback below or on Twitter.
Wishing you all the very best with your AdWords accounts and beyond!
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