When you are spending money on ad campaigns, you should be able to measure it. Since the digital platform is measurable, you should be able to measure the conversion rate of your Google ads to strategize better let’ understand the whole process and find out how ROI works and its essence.
How does ROI Work?
Is the cost to net profit ratio that advertisers use to understand whether their advertising goals and objectives in line with their perception of what it should be or not. However, the calculation of ROI depends upon your goal and objectives.
Here is the example of one way of defining ROI:
(Revenue – Cost of products or goods sold) / Cost of products sold
For instance, you have a product that costs you $200 to produce and you sell that for $400. For example, you sell 6 of these products as a result of Google ads. That means the total cost is $1200 and your total sales are $2400. Now, let’s say you have spent Google Ads costs are $400, for the total cost of $1600. Then Your ROI is:
($2400 – $1600) / $1600
= $800 / $1600
Here you have earned 50% return on investment. That means for every $1 you spend, you are getting $1.50 back.
Use conversions to measure ROI:
Your conversion rate would depend on your objectives based on the valuable customer actions such as signups, web page visits, leads and conversion tracking tool. You can use the Conversion tracking tool to determine the profitability of keywords and ad along with costs-per-conversion and conversion rates.
Here is how you need to set up conversion tracking:
That first thing that you need to do is to navigate to the tools tab located on the dashboard and choose conversion. Then you will be prompted to create a new conversion type such as sale, purchase signup subscription. Now, you should choose the value of conversion rate that you want to define.
The above-stated factors should give you a brief idea about the whole ROI process. But if you want more in-depth knowledge, then you can visit the Google support site to discover more and get in-depth knowledge.