Adwords Fundamentals

Anne-Marie’s business goal is to generate online sales of her handmade purses. Her AdWords costs are $100 per week and she wants to know if her advertising investment is paying off. What additional information do you need in order to calculate her return on investment (ROI)?

Anne-Marie’s business goal is to generate online sales of her handmade purses. Her AdWords costs are $100 per week and she wants to know if her advertising investment is paying off. What additional information do you need in order to calculate her return on investment (ROI)?

  • Number of clicks on her ads and costs to produce her purses
  • How many times her ads have been viewed and clicked on
  • Number of clicks on her ads and revenue they generated
  • Costs to produce her purses and revenue generated from her ads

The Correct answer is:

  • Costs to produce her purses and revenue generated from her ads

Explanation: ROI is the ratio of your net profit to your costs. It’s typically the most important measurement for an advertiser because it’s based on your specific advertising goals and shows the real effect your advertising efforts have on your business. The exact method you use to calculate ROI depends upon the goals of your campaign.

One way to define ROI is:

(Revenue – Cost of goods sold) / Cost of goods sold

Let’s say you have a product that costs $100 to produce and sells for $200. You sell 6 of these products as a result of advertising them on Google Ads, so your total cost is $600 and your total sales is $1200. Let’s say your Google Ads costs are $200, for a total cost of $800. Your ROI is:

($1200 – $800) / $800

= $400 / $800

= 50%

In this example, you’re earning a 50% return on investment. For every $1 you spend, you get $1.50 back.

If your business generates leads, the cost of goods sold is just your advertising costs, and your revenue is the amount you make on a typical lead. For example, if you typically make 1 sale for every 10 leads, and your typical sale is $20, then each lead generates $2 in revenue on average. The amount it costs you to get a lead is known as cost per acquisition.

More read: https://support.google.com/google-ads/answer/1722066?hl=en

Ali Raza

Ali Raza is a Web Developer and Digital Marketing Consultant.

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