We have seen plenty of poorly implemented PPC campaigns over the years, often on “auto-pilot,” with no attention to the results and data. So what exactly is ROAS? Hint: it differs significantly from ROUS – rodents of unusual size, though it can be just as challenging to wrangle.

Return on ad spend is calculated very simply: the total revenue generated by a campaign divided by the cost of the campaign. Of course, the difficult part is determining “revenue generated by the campaign.”

Before we even talk PPC at all, you need to know these two metrics from your business:

• Customer Lifetime Value – this might be challenging to determine depending on your business model. It is relatively easy if you have customers who pay a similar amount at regular intervals. Multiply your average annual profit per customer by the average number of years you retain them. If you mostly do one-time jobs for customers, what is the average revenue per project?
• Close Rate – for companies that pass leads from marketing to the sales team, what percentage of those leads convert to sales?

Now, we can look at website and digital ad analytics, most notably:

• Conversion Rate – of those who click on the ad and go to your landing page, how many convert to leads?
• Click Rate – of those who see your ad, how many click on it?

Those four metrics are the foundation for estimating your return on ad spend. Most successful PPC campaigns involve the entire customer journey and identify where prospects are at in the marketing funnel to serve them the appropriate ads.

Almost every closed deal or sale involves numerous customer touchpoints, some online and some offline. We can see much of this data with properly configured analytics and tracking code. However, we will never be able to know every single touchpoint and which ones were essential in influencing the buyer’s decision.

We recommend viewing multiple data sources on both the macro and micro level. We can see click-through and conversion rates on specific ads, but we can also look at 30, 60, and 90-day averages and lead trends. Depending on the type of business, the time from when a prospect first hears about your brand to when they make the purchase could vary from one day to several months or even a year or more. It’s helpful to know your average time-to-close so we can think about how marketing decisions we make now could impact sales in the future.

We work with our partners to estimate their return on ad spend and plan strategically to optimize PPC budgets.