How profitable should your online advertising be?

DorisRon

Member
"Half of the money spent on advertising, I wasted. But I do not know which half! "

This phrase is attributed to Lord Leverhuime, a soap magnate, who lived in the 19th century.

Is my ad effective? This issue concerns us today, is not it? It is pointless to argue with the fact that online advertising and contextual advertising in particular - is one of the most profitable advertising tools at this point. But how to measure the effectiveness of PPC campaigns? How to make sure that the cost of it was returned?

In this article we suggest you to calculate ROI (Return-on-investment). This figure gives an insight into how much money you have got from investments in advertising.

How to calculate ROI?

The formula is simple: ROI = (Gained profit through advertising / advertising expenses) x 100

We usually know expenses for advertising. They are reflected in the statistics of advertising systems, plus maintenance costs of the advertising campaign (they are sometimes not obvious, as expressed in the time spent by you).

It is a little more difficult to calculate the gained profit through advertising.

This can be the entire increase in profit for the period, if contextual advertising is the only form of advertising that you are using. Or if it is the only newly added type of advertising.

If you are using and other types of advertising, the problem is complicated. You need to separate the customers who came to you just by using the contextual advertising.

How to divide the flow of customers?

If your business is an online store, put a mark in the links, and customize your shop to remember them. Marks may look like this: http: //site.ru/?from=yandex

Most of the available engines in online stores are able to keep track of such marks and to provide you with statistics about purchases in real-time.

And what if you have only a website in the Internet and sales are made over the telephone or a visit to the office?

Ask new customers how they heard about your company. It'll be good, if the phone manager will make data on each call to the table. Most likely, you thought that with the large flow of customers, this is inconvenient to ask every time - 'how did you find out about us? " And you're right! So here's another option: use different telephone numbers for different types of advertising. For example, one number for outdoor advertising, and the other - for online advertising. Or use different numbers for advertising in different sources.

Variations of this method: different email address or different names of contact persons, who must be addressed (they may not be real, but it works fine for registering).

If customers need to come to your office to buy products, place an online discount coupon or a gift on your site. A buyer needs to print the coupon and present it to the seller. It is convenient to count the brought coupons that you. In addition, these coupons provide the purchaser an extra incentive to turn to you. And customers will be pleased to receive a discount coupon or a small gift (a magnet, a jar of coffee). Of course, the amount of such costs should be weighed against your profits from the sale.

On your site, in addition to coupons that not all print conveniently, a "passwords" or a "code words" for the discount can be located. It is desirable that these were the words that are easily pronounced. However, such passwords for the customer are not always convenient to say: it is not clear when, to whom, etc. Therefore, you have to teach sellers: they should ask if the buyer knows the password for a discount.

Count extra profit

OK, you've separated customers "from the Internet" from the others. What's next? How to calculate the profit that they bring to the company?

Then we have two options.

If there are a bit of sales, and you know each of them (for example, you are engaged in designing houses or sell industrial equipment, it is unlikely that you have more than a dozen clients per month), you can fairly accurately calculate how much profit was brought by customers who came on contextual advertising.

If you have a fairly large stream of customers, you can count "on average."

Let's estimate how much profit one client brings to you. For example, in a week you usually have about 60 customers. These 60 people brought to the company, for example, 90 000 dollars. It means an average client brings 1 500 dollars, with your mark-up it is about 450 dollars of income per person. Multiply those 450 dollars on the number of customers attracted by the contextual advertising, and get profit growth due to this advertising.

ROI

Now let's calculate ROI. Continuing with our example:

Let the customer profit be 450 dollars. With contextual advertising, you have attracted 25 new clients.

Additional income will be 11 250 dollars. Let's say you've spent 2500 dollars on advertising.

Then ROI = (11 250 - 2 500) / 2 500 * 100% = 350%

This means that for every dollar invested in advertising, you get 3.5 dollars of profit.

And what to do if your ROI was less than 100%? After all, does it mean that advertising is unprofitable for you?

There are two options. Perhaps you have not considered re-sales in the calculation, and when you find them, it turns out that in fact advertising is profitable. This situation, for example, is typical for customer service - legal, accounting, etc.

Or the second option: your ads did not bring you profit, although in theory they should. Do you want to know if you can fix it?

Your comments and questions are welcomed.
 

Dean

Well-Known Member
"Half of the money spent on advertising, I wasted. But I do not know which half! "

This phrase is attributed to Lord Leverhuime, a soap magnate, who lived in the 19th century.

Is my ad effective? This issue concerns us today, is not it? It is pointless to argue with the fact that online advertising and contextual advertising in particular - is one of the most profitable advertising tools at this point. But how to measure the effectiveness of PPC campaigns? How to make sure that the cost of it was returned?

In this article we suggest you to calculate ROI (Return-on-investment). This figure gives an insight into how much money you have got from investments in advertising.

How to calculate ROI?

The formula is simple: ROI = (Gained profit through advertising / advertising expenses) x 100

We usually know expenses for advertising. They are reflected in the statistics of advertising systems, plus maintenance costs of the advertising campaign (they are sometimes not obvious, as expressed in the time spent by you).

It is a little more difficult to calculate the gained profit through advertising.

This can be the entire increase in profit for the period, if contextual advertising is the only form of advertising that you are using. Or if it is the only newly added type of advertising.

If you are using and other types of advertising, the problem is complicated. You need to separate the customers who came to you just by using the contextual advertising.

How to divide the flow of customers?

If your business is an online store, put a mark in the links, and customize your shop to remember them. Marks may look like this: http: //site.ru/?from=yandex

Most of the available engines in online stores are able to keep track of such marks and to provide you with statistics about purchases in real-time.

And what if you have only a website in the Internet and sales are made over the telephone or a visit to the office?

Ask new customers how they heard about your company. It'll be good, if the phone manager will make data on each call to the table. Most likely, you thought that with the large flow of customers, this is inconvenient to ask every time - 'how did you find out about us? " And you're right! So here's another option: use different telephone numbers for different types of advertising. For example, one number for outdoor advertising, and the other - for online advertising. Or use different numbers for advertising in different sources.

Variations of this method: different email address or different names of contact persons, who must be addressed (they may not be real, but it works fine for registering).

If customers need to come to your office to buy products, place an online discount coupon or a gift on your site. A buyer needs to print the coupon and present it to the seller. It is convenient to count the brought coupons that you. In addition, these coupons provide the purchaser an extra incentive to turn to you. And customers will be pleased to receive a discount coupon or a small gift (a magnet, a jar of coffee). Of course, the amount of such costs should be weighed against your profits from the sale.

On your site, in addition to coupons that not all print conveniently, a "passwords" or a "code words" for the discount can be located. It is desirable that these were the words that are easily pronounced. However, such passwords for the customer are not always convenient to say: it is not clear when, to whom, etc. Therefore, you have to teach sellers: they should ask if the buyer knows the password for a discount.

Count extra profit

OK, you've separated customers "from the Internet" from the others. What's next? How to calculate the profit that they bring to the company?

Then we have two options.

If there are a bit of sales, and you know each of them (for example, you are engaged in designing houses or sell industrial equipment, it is unlikely that you have more than a dozen clients per month), you can fairly accurately calculate how much profit was brought by customers who came on contextual advertising.

If you have a fairly large stream of customers, you can count "on average."

Let's estimate how much profit one client brings to you. For example, in a week you usually have about 60 customers. These 60 people brought to the company, for example, 90 000 dollars. It means an average client brings 1 500 dollars, with your mark-up it is about 450 dollars of income per person. Multiply those 450 dollars on the number of customers attracted by the contextual advertising, and get profit growth due to this advertising.

ROI

Now let's calculate ROI. Continuing with our example:

Let the customer profit be 450 dollars. With contextual advertising, you have attracted 25 new clients.

Additional income will be 11 250 dollars. Let's say you've spent 2500 dollars on advertising.

Then ROI = (11 250 - 2 500) / 2 500 * 100% = 350%

This means that for every dollar invested in advertising, you get 3.5 dollars of profit.

And what to do if your ROI was less than 100%? After all, does it mean that advertising is unprofitable for you?

There are two options. Perhaps you have not considered re-sales in the calculation, and when you find them, it turns out that in fact advertising is profitable. This situation, for example, is typical for customer service - legal, accounting, etc.

Or the second option: your ads did not bring you profit, although in theory they should. Do you want to know if you can fix it?

Your comments and questions are welcomed.
I like this quote that you posted:
""Half of the money spent on advertising, I wasted. But I do not know which half! ""

That sounds like some people that I have known over the years. I think that they need to see this post of you, it will do them some good!

Cheers, Dean.
 
Top