The Biggest Mistake Most Businesses Make When Investing in PPC
What is the ROI on your PPC channels and how does it compare to your other digital marketing efforts?
If you can’t answer this question, you’re not alone.
When it comes to digital marketing, PPC is a critical piece of the client acquisition mix. Done right, it can bring you more leads, more sales, and more revenue. Done poorly, it can be a huge expense with minimal return.
After managing millions of dollars in ad spend we’ve learned that one of the most critical components to account success is managing campaigns to an efficient ROI. It’s our favorite and most telling metric. Understanding ROI from your paid digital advertising campaigns means tracking leads from click to close and measuring revenue on a per-channel (or campaign) basis.
When you understand which campaigns and channels are actually generating revenue, you’ll know where you’re making or losing money and have a powerful data set to share with your fellow executives and investors.
In this post, we’ll discuss how to invest in PPC for the long-term and learn about the unlimited opportunity to maximize your ROI.
How to identify an ROI target
When it comes to maximizing your results with PPC, the first step is to identify an ROI target. While this can be difficult to track, it’s one of the most important KPIs for your business and advertising health.
How do you determine an ROI target for your PPC efforts? Here’s how we do it:
(Sales - Marketing Cost) / Marketing Cost = ROI
So, if a PPC campaign generated $1,000 sales and the PPC campaign cost $100, then the campaign ROI is 900%.
($1000-$100) / $100 = 900%
While this doesn’t account for Lifetime Value (LTV), it’s still one of the most important metrics for you to track so you can make informed budget decisions.
How to invest in and evaluate your PPC to yield the highest ROI
Now that you’ve set an ROI target, the next step is to evaluate your performance based on ROI. It seems simple yet too often companies come to us after running PPC campaigns with uncertain feelings as to whether or not it’s working. If your PPC reporting looks like the below screenshot, it’s bad and good. Bad because you’re missing an opportunity to be more data-informed but good because we can work on it.
Instead of just looking at top of the funnel metrics like reach or clicks shown in the report above, once you have your ROI targets, we monitor results and evaluate performance based on ROI.
The cadence of your reports should be determined on your lead-to-close time. For example, if you typically close a lead in a 7 day window, you might look to do weekly reporting. We’ve also worked with clients with longer lead-to-close times, as long as an average of 3 months. In cases like this, you might look to do quarterly evaluations.
With ROI reporting, we track the following metrics at the account level:
Cost Per Visitor
Sales Conversion Rate
Cost Per Sale
The biggest mistake most businesses make when investing in PPC
Our most successful PPC clients also focus on retention. Rather than putting their entire budget into the upfront traffic drivers and then hoping their leads will turn into profitable clients over time, they apply proven customer retention strategies that lead to high ROI on their PPC investments.
Before launching your PPC efforts make sure your retention plan is solid. It’s hard to have the foresight to plan for every bump a customer might run into but making sure your team is empowered to spring into action on the customers behalf is critical. You’ll end up wasting time and money if the clicks your acquire through PPC don’t stick around.
To share an example, we have an existing client that consistently generates 100 leads per month from Adwords. We’ve been working with their team closely on PPC for over 15 months. In Q1 of 2018, we saw average returns - for every $1 we spent, the business made $2. We spent $40,000 each month and we got $80,000 each month in return. While this was positive, our other marketing channels were operating at a 3:1 return. By the end of March, we were so unsatisfied with our gains that we almost walked away from Adwords and Bing completely.
In May, we tried something new and it changed the situation completely. Instead of focusing on the click, or PPC channel, we dug deeper on the post-click. Asking, once we get a user to the site, how do we get them to convert? Once we get a user to call us, how do we close the sale? We listened to over 200 phone calls and found that certain sales reps were more successful with internet leads than others. We rerouted the PPC calls to a specific group of sales reps and within 30 days our ROI when from 2:1 to 7:1. We spent the same budget, generated the same amount of monthly leads, but increased revenue by 600%.
Why thinking long-term yields the greatest returns
In this blog post, we’ve talked a lot about ROI and managing your PPC accounts to an accountable ROI target. While a high return is generally the key goal for your PPC efforts as a whole, picking a metric that’s relevant to your campaign objective is equally important.
For example, one of our clients is actively advertising on YouTube, Facebook, Instagram, Bing, and Adwords. We use these channels in a comprehensive cross-channel PPC effort to funnel customers through the path-to-purchase.
When it comes to YouTube, we use this channel to strengthen brand awareness and open up the funnel to as many potential people as possible. Because of this, we evaluate our YouTube campaigns based on reach and impression metrics, rather than ROI. We then use Facebook and Instagram to retarget video viewers and drive as much quality traffic to the site as possible. We evaluate these campaigns by click metrics. Last but not least, we then use a combination of Adwords and Bing campaign types to drive sales. Our collective PPC efforts - YouTube, Facebook, Instagram, Bing, and Adwords - are then evaluated by an ROI target.
From plug-in equations to determine your ROI to higher level strategy focused on customer retention, PPC is a powerful and important digital marketing tool. Empowered with data, you can learn how to yield the highest PPC ROI for your campaigns. Our team at Tuff loves helping people learn and use these tools. If you ever have any questions or new strategies to teach us, send a note!