ROI Calculation of Online campaigns

Online campaigns help increase your visibility online. But as in any investment situation, one must ensure that investment both money and time pay off. Return on Investment (ROI ) is profit made from money spent. ROI helps determine whether an investment was a good one and helps decide whether one needs to adjust investment on specific outlays.

In online/keyword marketing, ROI can help determine which ads and keywords to continue using providing a steer to develop future marketing campaigns.

To calculate ROI the following information is required –

Ø Ad Cost – Amount spent on paid search campaigns(keyword bidding costs could be one example)

Ø Clicks – Number of Clicks generated from your campaign. A measure of clicks is Click thru’ rate ( number of clicks/number of impressions x100)

Ø Number Sales – Sales generated from a particular campaign

Ø Revenue – The total income generated from paid listings for a product

How is the effectiveness of a campaign calculated? Some fairly elementary formulae can be used to calculate Campaign ROIs

Ø Profit generated from an Ad – Total Revenue – Cost

Ø CPA – Number of sales generated from a campaign. This can easily be calculated by dividing Ad cost by number of sales

Ø ROI - Profit %age /ad cost x100

Online marketers are looking for ongoing relationships with clients. Relationship longevity happens out of consistently performing campaigns.

In performance based campaigns - CPL or CPA – the marketer’s sole goal is to ensure regular lead or sales generations. The CPL or CPA on a campaign needs to be weighed against the CPM cost of running the campaign. Over a period of time, revenues generated from a CPL/CPA initiative need to be stacked up against campaign costs to determine profitability of a campaign from the marketer’s perspective. If the campaign proves to be profitable, fine. Else the marketer needs to re-negotiate CPL/CPA rates with the client to make it win-win for the marketer/ advertiser. Often, this process of determining campaign profitability can be a losing proposition for the marketer ( Read my article Online Marketer and Advertiser - A win-win model)

An advertiser is quite happy to continue a CPL/CPA campaign in the face of non-performance, because his payout happens on generation of a lead or, better still, on a sale happening. The onus in this instance is on the network owner to monitor, optimize the campaign and get it to perform. And, if necessary, re-negotiate rates.

In a CPM / CPC campaign, however, the tables are turned. Payouts happen for number of impressions/clicks, as the case may be. Given the intention to have long-term relationships, the network owner has to , at the outset, agree campaign goals with the advertiser. Very rarely do we have simple brand-building campaigns where delivery of impressions over quality inventory is all that matters. Typical goals that an advertiser would set for a network are –

Click Thru’ rates – The advertiser would like to agree a CTR %age with the network. Having the experience running campaigns in the past, the advertiser would know what kind of CTRs would get him maximum sales/registrations. The CTR is the pre-cursor to an actual sale happening. Which brings us the next goal an advertiser would have for the network.

Campaign CPAs – Even for CPM/CPC campaigns, the advertiser would have a $ CPA goal. For example, the advertiser could decide that for the campaign to be profitable, he needs to generate one sale for every $ 40 spent on the campaign.

The network owner needs to know these goals upfront. Once the campaign is live, he’ll need a continuous feedback from the client on how many sales/registrations are happening. Based on these statistics network owners need to optimize the campaign to ensure CPA goals are met, thereby ensuring customer satisfaction and possibility of a long-term client engagement.