One issue I come across frequently is that companies run Google Ads campaigns without an idea about profitability. While I do advocate to start with Google Ads when it comes to digital marketing, Google Ads can also be very expensive. If you, or your company, need to be profitable then read this short article.
Set Up Conversions and Conversion Value
You need to track conversions and your conversions need assigned dollar values. Without it, you cannot compute ROI (return on investment).
For a company who sells products online, this is straightforward. You add the conversion event to the thank you page, as described here. And if you use an established ecommerce platform, like Shopify, they have great conversion documentation you can follow.
The key here is that for purchases, the value has to be dynamic. By that I mean, the conversion value changes based on what is purchased.
For B2B lead gen companies, it’s a little trickier. You will still set up a conversion event but this time on the successful submission of a form. But what value do you attach to that form? Here’s a formula:
AOV (average order value) X Percentage of form fills that turn into sales = conversion value
For example, if my average order value is $10,000 and 5% of the people who fill out my form convert into a sale, then the value of that conversion is $500.
Here’s the catch, that’s revenue, not profit.
Determine Your Profit, Not Revenue
Let’s take the above example of my $500 conversion value. Maybe the form is an inquiry about buying a boat and the average price of a boat is $10,000 (it’s probably not, I’m not a boat guy). That $10,000 includes the price to buy the boat wholesale or pay to make it custom, personnel salary, fixed expenses like sales floor space, electricity, your marketer’s salary, etc.
All that to say, if you paid $500 for a form fill you may think you broke even when actually you lost money!
So how do you get around this?
You find out the profit from a lead.
Let’s say ath $10,000 sale is $2,500 of profit. Now change the calculation from average order value (AOV) to average profit. That’s $2,500 times 5% which equals $125. $125 is the most you can pay for a lead gen form fill conversion.
Setting Up in Google Ads
If you put in $125 for a conversion value in Google Ads, then you will be able to access this ROI value pretty easily. Click on “Modify your columns” and insert the column called “Conversion Value/Cost”. Since this conversion value will only be profit, this column can show a true ROI value. Any value above 1 will be profit.
Look Through Your Data
Now that you know what your cost per conversion should be, look at your campaigns, ad groups, and keywords. Where can you cut and where can you add?
There may be terms that you think are great, but ultimately don’t make you money. You have to cut or reduce the cost in some way.
To me, this is what a digital strategist, ppc agency, and ppc strategist can do for a company.
There are lots of levers, both big and small, that you can pull to turn an unprofitable campaign into a profitable one. It takes time, money, competency, planning, and most of all, it has to be based off your profitability, not revenue.
For any questions, feel free to reach out.