In two previous articles, I passed along tips and experiences from several online sellers who pay to market their businesses and products online. The reason for paid ads is clear: every businessperson wants to achieve an adequate Return on Investment (ROI). For what they spend, they want an adequate return.
The question is, how do you determine what constitutes adequate ROI? Is it as simple as plugging your figures into an ROI calculator such as this one? The sellers I talked to said there's no shortcut. You need to analyze and keep on top of your campaigns at least weekly and, according to one seller, hourly if you can. ROI can be measured in ways other than profits, too. Different options for measuring ROI follow.
1) Track Conversions
Jeff Kear, owner of the event planning service Planning Pod, measures ROI the straightforward way: by tracking conversions. For each sale, inquiry, or signup, he knows exactly how much he spent.
"I use the tools provided by Adwords and Bing to set up conversion tracking so I know the cost for each conversion on my site," he says. He advises sellers to be cautious and focus on narrowly focused keywords.
"Never, ever, dive into online advertising by setting your daily limits high and bidding lots of money on heavily searched, broad keywords. I learned this lesson the hard way and in my first week of online advertising racked up about $1,800 in PPC charges that converted only 6 customers at $600 in revenue. It's best to dip a toe in than to dive in with both feet."
2) Track Customer Acquisition Cost and Revenue Per Dollar Spent
Chris Rustici, co-owner and founder of ubuycoffee.com, advertises on Google, Amazon and Shopping.com. "Key metrics I care about are my customer acquisition cost and the revenue per marketing dollar spent. Those together give me a good idea of my ROI."
The reason you need both of them, he said, is because you could have really high acquisition costs but your revenue could be equally high and vice versa. "I found that with my average order of $80, an acquisition cost of $8 and $9 of revenue per marketing dollar sent has been my successful benchmark."
3) Determine Lifetime Value (LTV)
"It's good to measure ROI in different ways, using different metrics, to get a well-rounded idea of the effects of your advertising," he comments. "That said, much of the time I'm looking at lifetime value (LTV) of customers who came from a specific source." LTV measures the net profit a business gets from the entire future relationship with a customer.
He urges those starting out with paid ads to "start small, test lots of things, and then scale the areas that bring in the right ROI."
4) Measure Using Google Analytics
Mario Acosta, who sells personal defense products at Personal--Security, emphasizes the importance of measurement and analysis using Google Analytics and other tools.
"ROI is easy to calculate as long as you know where your visitors are coming from and which of those visitors convert," says Acosta. "All you need to do is install Google Analytics and of course, spend some time running and analyzing reports. Google Analytics is definitely addicting (at least for me!)."
His advice: do market research and analysis: "Determine your average keyword costs as part of your advertising analysis. Make sure there are enough keyword searches for whatever keywords you choose. Use Google Analytics. Without analytics data, you are virtually running blind. Analyze results daily, then weekly. Don't give up after day one. PPC is a numbers game, you may have zero sales one day and five the next. The longer you run a campaign, the more you'll understand the real numbers."
5) Keep Testing
Mike Dash, president of CarPartKings.com, measures success through Lifetime Value, and uses "simple formulas that can measure the rate at which you are spending vs. what your margins are on the products you sell."
He advises sellers to keep testing and trying out different ad campaigns rather than sticking with the same lineup for too long. "Some ad campaigns make money for you, some break even, and some are losses," he says. "You have to figure out which ones to eliminate and which to put more resources behind. Testing is extremely important during this process. Eventually you will find the right mixture that pays off."
Online Sellers See Positive Return with Paid Ads - Online merchants discuss the best places to advertise online and why.
Merchants Discuss Outsourcing SEO and Advertising - Online merchants discuss whether it makes sense to hire consultants to manage their paid ad campaigns and when to hire an in-house expert.