What Is Return On Investment (ROI)

Measuring your Return On Investment (ROI) from your pay per click advertising campaign is a crucial part of judging the campaign's success. This is because the ROI that you experience is the determining factor on whether or not you pay per click advertising campaign has been successful, and more importantly, whether or not you should adjust or cease your campaign. But just what is Return On Investment?

Basically speaking, Return On Investment is the measurement of the return you get on your advertising spending, expressed as a percentage. For example, if you spend $100 on pay per click advertising and that advertising results in a $200 in revenue, then your Return On Investment would be 200%.

Basically, the equation to work out your Return On Investment goes like this: (Revenue / Expense) * 100

E.g. ($200 / $100) * 100 = 200%

When it comes to pay per click advertising, any Return On Investment (ROI) above 100% is deemed to be successful since a ROI above 100% indicates that you are making more money than you are spending.

Example of how Return On Investment is calculated:

John owns an online ecommerce jewelry store. John decides to sign-ups for pay per click advertising service. He spends $20 on targeted pay per click advertising traffic for his ecommerce store. As a result of his $20 investment in pay per click advertising services, John's ecommerce store receives 5 sales, resulting in $100 revenue. He spent $20 in expenses and made $100 in revenue as a result of it. John's ROI would be: ($100 / $20) * 100 = 500%

This is an exceptional Return On Investment, that John has received, and his pay per click advertising campaign would be judged a big success.

Now that John has worked out his ROI and has positive results, John can now be confident that he can continue is pay per click (PPC) advertising campaign and continue to fund his advertising account.

Now that you know how to work out your Return On Investment, the next question that you should ask yourself is, "how often do I need to work out my ROI?" Well, this depends on how much you are spending and how much traffic you are receiving. If you are spending $50 per day on pay per click advertising than it is probably necessary for you to calculate you Return On Investment on a daily basis, since with a relatively high amount of spending, you need to closely monitor your pay per click advertising campaign for sudden drops/rises that will influence your revenue (and therefore your ROI). If you monitor your ROI on a daily basis you are quickly able to make adjustments if you need to. Having said that, if your total pay per click advertising spending is only $50 per month, then it is not as important for you to monitor your ROI on a daily basis. It is also important to bare in mind that your ROI will vary slightly from day to day, week to week, so there is no need to worry if your ROI is slightly down on any given day.

As explained in this article, calculating your Return On Investment (ROI) is an important part of any pay per click advertising campaign and now that you are fully aware how to do it, your pay per click advertising results (your ROI) is sure to improve!