Re: How To Calculate the ROI
You can use Conversion Tracking to track ROI. To use this feature, you'll have to generate a tracking code from AdWords and paste it in the 'Thank You' page that comes up after a conversion action on your website. If every conversion is of same value to you, you can assign a static value while setting up conversion tracking. If each conversion is of different value (like an e-commerce website) you'll have to follow a set of steps to implement it. Please follow this article for instructions on Conversion tracking set up. More info on conversion values here.
Feel free to write back with questions.
withRe: How To Calculate the ROI[ Edited ]
October 2014 - last edited October 2014
I will add a couple of pointers here to the answer above. Firstly conversion value tracking is important and key to this procedure. However, tracking the value of each sale and how much your ad campaigns cost is not a true reflection of ROI.
The value that you will receive by tracking the value of your sales is ROAS (return on ad spend) which, in most cases, is different from ROI.
In order to calculate ROI you need to know all the expenses that go into a product, so that would be calculating the cost of that product as well. I will give you an example here to better illustrate.
For simplicity sake lets say you are reselling product A that you bought for $10, and you are selling it for $20.
If your CPA (cost per acquisition or in this case cost per sale) is $2, in other words for every $2 you spend on AdWords you sell 1 product.
This would give you a ROAS of 1000%, for every $100 you spend you receive $1000.
This does not, however, take into account the cost of the product which is $10.
So it is more accurate to say that for every $600 you spend you make $1000, which will give you a ROI of 167%.
Of course there are other expenses to take into account, such as salaries and such.
So the formula for ROI is simply Cost/revenue%.
With cost accounting for all costs involved in the product, including advertising.
My suggestion would be to work out your profit per item (all costs associated with that item excluding Advertising) and then you will have a more accurate idea of what you are able to spend on AdWords in order to stay profitable.
Hope this Helps
Re: withRe: How To Calculate the ROI
Excellent points from Sumanth and Clynton.
It may also be wirth reading a previous thread, How do you know how much a click is worth to you, found here: https://www.en.adwords-community.com/t5/From-the-Community-Team/Discussion-How-do-you-know-how-much-...
All the best