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Measuring ROI from an online marketing campaign (SEO, PPC, or any online campaign)

A few weeks ago I posted on how to cost justify running a Paid Listing (PPC) campaign (Cost justifying using a Search Engine Marketing Agency to run a PPC campaign).

Ok, so you’ve gone ahead and started a PPC campaign. In this post we’ll show you how we try measure the Return on Investment from an online marketing campaign for our clients. This example is based on an actual Paid Listing (PPC) campaign, in this case a Google AdWords campaign, but the method can be applied to measure approximate ROI from any marketing campaign as long as you have some way to measure the results to an acceptable level of accuracy. For example an analytics system that can track conversions by keyword and/or search engine and break out “organic” search traffic from PPC traffic can be used to measure the ROI from an organic search campaign.

This ROI example includes both online sales and leads generation goals. Measuring ROI from online sales is relatively easy. Measuring ROI from lead generation goals can be a bit trickier.

Client Background
When we start an online marketing campaign one of the first things we do is determine the goals (conversion points) of the web site that will both help us manage and optimize a campaign and that we can use to try to approximate the ROI from the campaign.

This client handles vacation rentals. We’ll call them Pacifica (not their real name). There are three important goals or conversion types that we are measuring on their web site, in this case using Google AdWords conversion tracking.

  • Reservations – Vacation home reservations can be booked right on the web site. They make and average of $700 in commission on each rental
  • Rental Requests – Visitors can fill out a simple form stating that they are interested in a vacation rental for a certain week.  The client believes they need about 10 of these type of leads to turn into a booking, a 10:1 leads to sale conversion rate.
  • General Inquires – There’s a general inquiry form on their Contact Us page. They believe they need about 20 of these leads to turn into a booking, a 20:1 leads to sale conversion rate.

Calculation of approximate ROI
Here’s the calculation we did to estimate the Return on Investment (ROI) for a recent month.

Reservations:

There were approximately 37 online reservations reported by Google Adwords during the month

37 Reservations X $700 in commissions = $25,900 in commissions

Rental Requests:

Google Adwords reported that about 67 people submitted rental requests stating they are interested in a vacation rental for a certain week in the future.

At a 10:1 leads to sale conversion rate this should lead to about 6 sales

6 sales X $700 in commissions = $4,200 in commissions

General Inquires:

Google Adwords reported that about 119 people submitted the general inquiry form on their Contact Us page.

At a 20:1 leads to sale conversion rate this should lead to about 6 sales

6 sales X $700 in commissions = $4,200 in commissions

Approximate Gross profit from PPC Campaign:

$25,900 in gross profit from Reservations +
$4,200 in gross profit from Rental Requests +
$4,200 in gross profit from General Inquires =

Approximately $34,300 in gross profit

Cost of the PPC campaign for the month:

Ad spend = $9,500.

eVision campaign management fee (15% of ad spend) = $1,425

Total cost of the ad campaigns – $10,925

ROI calculation:

Approximately $34,300 in gross profit from commissions

– Less Total cost of the ad campaigns – $10,925

ROI for the period = Approximately $23,375

They invested $9,500 to make approximately $23,375 a 246% Return on the Investment

Notes on accuracy etc

Here’s a few things you should be aware of that can affect accuracy etc.

In our experience from running many campaigns and testing the conversion numbers reported by AdWords against various analytics systems and when possible to actual results we find that AdWords conversion tracking usually under reports conversions. So the numbers of conversions being reported are likely to be lower than actual.

We can’t get to this level of conversion tracking for all clients, at least as soon as we’d like, for a number of reasons including –

If there are significant numbers of offline conversions (such as sales completed on the phone or during visits to a physical facility) they need to be tracked to some level in order to estiamte the number of conversions from the campaign. This can be difficult to do (I’ll probably post on this in the future).  For this client very few people contact them on the phone etc so we do not need to track offline sales.

Technical issues on the site. Sometimes there are technical issues on the site that need to be addressed to allow us to track conversions, which can take time, sometimes a painfully long time! (This may be a topic for another post in the future).

For More Information
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