As an online retailer you pay for every click, but how does this translate into increased revenue and growing your bottom line? And how do you calculate this? Zoe Bates offers her advice on how to demonstrate the impact of core optimisation on return on investment (ROI) for your paid search campaigns.
When managing any paid search campaigns, the key to securing budget is forecasting what you expect to get back. Once you get your forecasting going, it will enable you to predict scenarios such as what to expect if you increase or decrease your spend? Or what impact could a higher conversion rate have on budget and potential return? It will also help you to understand your campaign limitations – helping you avoid wasted spend for minimal return.
Read on to discover four tactics to drive efficiency across your AdWords account, including budget alignment, QS and CPC improvements, and landing page/feed optimisation.
For the purpose of this blog, we have created sample data* to show the current situation (A), four tactics (B-E) and a target overall scenario (F), which puts all strategies together:
The Current Situation (A)
Our example client has a monthly AdWords budget of £4,000 and achieves an average cost per click (CPC) of £0.25, and 16,000 clicks per month. The average sales value is £100. For the purpose of this example, we forecast that, over a three-month period, the average customer will repeat purchase three times, leading to a total lifetime sales value of £300. Forecasting should always factor in lifetime sales value. This is simply because when you acquire a customer you don’t just want them to make one single transaction. You want them to become an advocate of your brand and make repeat purchases, supported by your broader customer retention strategy.
Conversions: Visit to e-commerce sale The current situation example has a conversion rate/visit to e-commerce sale of 2.3%. This equates to 360 e-commerce sales out of the 16,000 clicks. At an average sales value of £100 this leads to a total sales value of £36,600 and a cost per sale (AdWords budget divided by number of sales) of £11.
Conversions: Repeat e-commerce sales In our current scenario the conversion rate of new sales to lifetime sales (i.e. those customers that will go on to buy more than once) is 20%. This brings in 72 new sales with a value of £21,600.
Conversions: Total e-commerce sales revenue All of the above figures in our current scenario lead to an end result of 432 sales with revenue of £57,600. Take off the initial PPC spend of £4,000 and you’re left with a profit of £53,600. This is a respectable enough return and profitable, but it can be improved. Here’s how…
Four Tactics To Improve Your AdWords ROI
- Wastage Reduction (B)
It’s important to look at how you can reduce budget wastage. This is where you focus on match types, the % of budget they are spending and how well they perform. Are there keywords on match types that are eating away at the budget but not performing? What improvements can be made through adding in negatives or optimising match types? Are there keywords you can make the bold decision to pause or to test positions on? These improvements will show where budget can be saved, and will have a positive impact on conversion rate as you will be eliminating the wasted spend.
In our Tactic B example we have reduced the monthly PPC budget to £3,400. This is because we have eliminated those keywords not performing and/or built out our negatives list and optimised match types. The CPC remains the same at £0.25, as does the average sales value of £100 and the lifetime sales value of £300. However, the number of clicks/visitors reduces to 13,600. Don’t panic!
Conversions: Visit to e-commerce sale As we have optimised the keywords our conversion rate has increased to 2.7%, which brings in 367 e-commerce transactions, with revenue of £36,720 at a lower cost per sale of £9.
Conversions: Repeat e-commerce sales The conversion rate of new e-commerce sales to lifetime sales remains at 20%, bringing 73 repeat purchases at a value of £22,032.
Conversions: Total e-commerce sales revenue Our wastage reduction scenario leads to a total of 441 sales, creating a total e-commerce revenue of £58,752 with a bottom line profit of £55,352, a small improvement on the current situation (A).
- Optimising CPC & QS Management (C)
How can you reduce CPCs and improve Quality Score (QS)? This is about focusing on the relevancy of keywords to ad text and making improvements to ads. Could you use Dynamic Keyword Insertion to drive up relevancy and CTR? By focusing on these areas you should see lower CPCs, meaning more clicks for the same budget. Let’s look at the stats.
In Tactic C we have reduced the average CPC to £0.22 while maintaining spend at £4,000. This brings in 18,182 clicks/visitors, an increase of 2,182 visitors, from the current situation (A).
Conversions: Visit to e-commerce sale Our conversion rate is back at 2.3%. However, due to the extra 2,182 clicks our number of e-commerce sales has increased to 418. This brings a total e-commerce sales value of £41,818 at a cost per e-commerce sale of £10. This brings an e-commerce revenue gain of £5,818 from the current situation.
Conversions: Repeat e-commerce sales Our conversion rate of new e-commerce sales to lifetime customers remains at 20%, but the increased clicks upfront means that we now have 84 lifetime customers, with a revenue of £25,091, a forecast increase of £3,491 in e-commerce sales compared to our current situation (A).
Conversions: Total e-commerce sales revenue By optimising our CPC and employing QS management we forecast Tactic C will create a total of 502 e-commerce sales, bringing in a total e-commerce sales revenue of £66,909. Bottom line profit is forecast at £62,909 – a gain of £9,309 from the current situation (A).
- Budget Refocus (D)
For effective budget refocus, this is where a tip top account structure is imperative. Look at the impression share of each campaign and the keyword performance. Ask yourself, should you consider breaking out your top performing keywords into their own campaign to ensure they always have the visibility they need? By isolating the top performers into their own campaign, it will give the other keywords the opportunity to gain visibility and demonstrate their value.
Conversions: Visit to e-commerce sale By refocusing our budget we forecast that Tactic D will see an increase in conversion rate to 2.5%. This will create 400 e-commerce sales creating a total e-commerce sales value of £40,000 – a forecast gain of £4,000 from our current situation (A).
Conversions: Repeat e-commerce sales The increase in unique purchases filters down to an increase in lifetime sales. In our Tactic D forecast we have 80 new lifetime sales equating to £24,000 in e-commerce sales, up £2,400 on our current situation (A).
Conversions: Total e-commerce sales revenue By refocusing our budget and breaking out our top performing keywords into their own campaign we forecast that Tactic D will lead to a total of 480 e-commerce sales, producing a total e-commerce sales revenue of £64,000. Minus our initial PPC spend of £4,000 this leaves a profit of £60,000 – a forecast gain of £6,400 on the current situation (A).
- Landing Page and Feed Optimisation (E)
Look at the conversion rate (CR) of each campaign/ad group. Is it what you expect it to be and could it be improved? Do you think that the landing pages are as relevant as possible for your product pages? Once you have a visitor on your site you want to ensure they have the best experience possible. They liked your shop window (your ad) now you want to ensure they enjoy their experience and make a purchase. Could CR improvements be made to the pages? Are you A/B split testing?
Look at the quality of your shopping feed. For any e-commerce brand the spend allocated to Google Shopping/PLA is incrementally growing year on year, with some brands spending up to 60% of their budget through Google Shopping so, like auditing your AdWords account, you should ensure that your feed adheres to best practice and is optimised to ensure maximum exposure of products, delivering the greatest ROI.
Conversions: Visit to e-commerce sale We forecast that Tactic E would deliver a conversion rate of 2.8% - up 0.5% on our current scenario (A).This leads to a total of 448 e-commerce sales, generating £44,800 in e-commerce revenue – a forecast increase of £8,800 – and all at the lower cost per sale of £9.
Conversions: Repeat e-commerce sales The gains continue to filter down. Thanks to your landing page and feed optimisation, the number of new lifetime customers has grown to 90, producing a total value of lifetime e-commerce sales of £26,880 – a forecast gain of £5,280 over the current situation.
Conversions: Total e-commerce sales revenue By implementing Tactic E we forecast that total e-commerce sales would grow to 538 bringing in a total e-commerce sales revenue of £71,680. Minus the initial £4,000 PPC spend, Tactic E delivers a forecast total profit of £67,680 – a gain of £14,080 on our current situation (A).
Creating the Perfect Paid Search ROI Forecast
The Target Scenario (F)
All of the above improvements added together give you your target scenario. Looking at our example above and using the four tactics listed, we can reduce the CPC by £0.03 and increase the total number of clicks/visitors by 2,181 to reach 18,182
Conversions: Visit to e-commerce sale By implementing all four of the tactics above, we forecast that conversion rate will increase to 3.4% leading to 618 new e-commerce sales, with revenue of £61,818 – a forecast increase in e-commerce sales of £25,818. What’s more, the cost per e-commerce sale has dropped to £6.
Conversions: Repeat e-commerce sales The Target Scenario delivers the same 20% conversion rate of new e-commerce sales into lifetime customers, but the increase in clicks/visitors and the resulting growth in initial conversion rate means that we now have 1,224 lifetime customers with a revenue gain of £27,091 from the current situation (A).
Conversions: Total e-commerce sales revenue By implementing our four tactics we forecast that total e-commerce sales will total 742, a 58% increase on our initial total e-commerce sales figure of 432. As a result, total e-commerce sales revenue is forecast to achieve £98,909, leading to a bottom line profit of £94,909, a forecast increase of £41,309.
These are big gains, which may take 3-6 months to achieve. Now imagine what happens to your forecast when you continue making these improvements over a 12-month period…
Want to discover how to build out and deliver an annual forecast for your paid search activities? Download your FREE eBook How to Build an e-Commerce ROI Forecast for Paid Search today and start optimising your account to drive ROI.
*The statistical data in this blog is Example Data only. This is for illustration purposes only in describing our forecasting methodologies and should not be taken as a tried and tested business example.