The PPC ROI Calculator: How To Forecast And Optimize Your PPC ROI

We created a PPC ROI Calculator over at FuelInteractive.com to help you in a couple ways:

1. If you haven’t started PPC yet, you can forecast your ROI.
2. If you’re already running PPC, you can play with the metrics and see how you might increase ROI.

You can increase ROI by improving its component metrics.

The components of PPC ROI are:

• Cost Per Click (CPC)
• Conversion Rate (CR)
• Average Sale

Want to change your ROI? Return on investment increases when more money comes in, decreases when money goes out. So…

• If average sale increases, so does ROI. If it decreases, ROI decreases. We want average sale to increase.
• If conversion rate increases, it takes less ad spend to get a sale, so ROI goes up. We want conversion rate to increase.
• If cost per click increases, ad spend does too, so ROI decreases. We want cost per click to decrease.

How to Forecast Pay Per Click ROI

In order to do this, you need a few pieces of information… or you can guess at them.

• Monthly ad spend: your client may provide this, or you can recommend one. We prefer clients with a minimum of $5k monthly spend. But some go into the hundreds of thousands of dollars.
• Conversion Rate: your PPC CR will differ from the rest of your site, depending on how well you optimize your account structure and landing pages, but you can start with one that’s based on natural search traffic. If your site is new and has no traffic, PPC will help you find this value. Hopefully, your ecommerce site conversion rate is 1.00% or above, and your lead generation site gets 3.00-5.00% or more. Yeah, the FutureNow guys expect better- good for them and their conversion optimization friends. If you aren’t there yet, use my values. If your CR is lower than what I suggest, your site needs work.
• Cost Per Click: get this from AdWords’ keyword tool and traffic estimator, or third party services like KeywordSpy and SpyFu. You’ll want a CPC that’s an average for the niche you’re targeting- you can look at the CPC for the most popular terms, but your average is going to be somewhere below that, if you use mid and long-tail keywords.
• Average Sale: if you don’t have this from your website, base it on offline sales, or a realistic purchase. (Are customers likely to buy just one? What’s the price? Use that.)

Enter these into the PPC ROI Calculator and hit “calculate”, and stare in amazement at the results. You’re welcome.

How to Optimize PPC ROI With The PPC ROI Calculator

Once you’ve taken a look at your real metrics, you can play with the values to see how you might realistically increase ROI. Here’s how you could tactically optimize the components of ROI to achieve that goal.

Cost per click (CPC)

• Can you get any benchmarks or look at other businesses doing ppc in the same vertical to find out if your CPC is higher than average? Or, again, try KeywordSpy and SpyFu.
• Have you optimized your quality score, or is it below 7 for a lot of your keywords? Are you spending a large percentage of your money on keywords with low quality score? Improve your account structure, write and test ads to get a higher CTR, make sure your landing pages fit with the keywords and ads that precede them in the user experience. Make sure you read my post about CTR and quality score.
• Are you allocating as much of your budget as possible to the keywords that are both low CPC and high ROI? If not, move them into their own campaigns so that you can. Read more about PPC budget optimization here.
• Head back to the PPC ROI Calculator and see what decreasing CPC 10% or 20% would do for your ROI.

Average Sale (Value/Conversion)

• Sometimes specials and discounts govern the ultimate selling price. Collaborate with whoever creates these offers so that you can test offers and ads together for optimal ROI. Strike a balance between lowering price and increasing CR.
• If you often sell multiple products per conversion, can you incentivize to increase cart size? Upsell and cross-sell your heart out.
• Use the PPC ROI Calculator to see what increasing your average sale by 10% or 20% would do to your ROI.

Conversion Rate (CR)

• For ecommerce, I like to see at least a 1% CR. For lead gen, at least 3-5%. I consider those acceptable minimums. If you’re below this, you need some design and usability improvements. Look at the leaders in your vertical and see what they’re doing differently. In particular, look at the sites that consistently place PPC ads in the top 4 positions in your vertical. If they’ve been doing it for a long time, they’re probably getting enough ROI to justify continuing, and that means they’re probably getting a decent conversion rate.
• Go back to the PPC ROI Calculator and see what an acceptable minimum CR would do to your ROI. Or if you’re already there, raise your CR by 20% and look at what that does for your ROI.
• Work with web designers to improve conversion rate. Integrate conversion optimization into redesign strategy.

After trying out improvements in ROI component metrics in the PPC ROI Calculator and thinking about what you realistically can improve in your PPC accounts and websites, take action. Improve those metrics!

Brian Carter is the Director of PPC, SEO, and Social Media for Fuel Interactive and The Brandon Agency. He co-founded TweetROI which is an AdWords-like Twitter advertising service.