PPC Ads – Revenue is Vanity Profit is Sanity

PPC Ads – Revenue is Vanity Profit is Sanity
Phil Rothwell is an ecommerce expert with more than 20 years’ experience helping retailers to sell online. He was there at the beginning of ecommerce and played a leading role in growing Actinic Software from dot com start-up to floatation on the London Stock Exchange

In many ways, Google Ads is great.

Like consumers, businesses vote with their wallets; if Google Ads didn’t work at all no one would use it.

If you can get Google Ads working for you, it can be a very efficient way of generating sales.

If it was not, then Google’s advertising revenues (currently around $120 billion per year) would not have been growing consistently since the service was introduced.

Google hang ups

Which begs the question, why do so many businesses avoid using it if they can?

Partly, it’s because it is possible to run an online business without buying adverts. Organisations with a good track record, high search engine rankings and a decent mailing list don’t need to advertise.

For most non-users, though, it’s because Google Ads is complicated, and it is very easy to spend a lot of money and not get much in return.

Pretty much every online retailer that I know has setup a Google Ads campaign, spent a few hundred quid, got nothing in return and switched it off.

But they are the lucky ones.

The biggest losses are incurred by those for whom Google Ads partially works— who regularly consider pausing their campaigns, but never quite manage it.

Which all begs the question, how do you know when enough is enough?

Revenue is vanity, profit is sanity

The key to finding an answer is measuring the profitability of your campaigns.

When you are selling products then estimating this number with accuracy is within the grasp of most retailers, so long as you do the following:

Step 1 -Technical Setup

Configure Google Analytics

If you have not done so already, you need to setup Google Analytics properly and view for your website. As part of this process, you will need to “enable ecommerce” in the ecommerce set-up screen. So long as you use a half-decent ecommerce platform, this will enable Google Analytics to track sales through the website.

Link Google Analytics with Google Ads

You need to link your Google Ads account to Google Analytics, using Google Ads Linking. This will enable Google Analytics and Google Ads to exchange information. Not only does it allow you to view useful Google Ads metrics in Google Analytics, but Google Ads can recover conversion and order information from Google Analytics.

Add a Conversion Action to Google Ads

This enables Google Ads to see conversions as they happen online and report the sales generated in its reports.

Step 2 – Viewing the data

Once Google Analytics and Google Ads are configured, you should be able to see conversion information in Google Ads.

The fields that bear this information include:

Field Description
Clicks The number of times visitors have clicked an advert
Cost The total cost of the clicks
Purchases/Sales The number of orders
Conv. value The total value of sales
Cost / conv. The average amount of money spent on advertising to generate a single sale
Conv. rate The average number of sales made per hundred clicks
Conv. value / cost The ratio of the value of sales generated divided by the advertising cost. Sometimes called the Return on Ad Spend (ROAS)

So far, so good.

Step 3 – Interpreting the data

At first sight, all of this is straight forward. If you know how much you have spent on advertising and how many sales you have made, then it’s easy to see how successful your ads are.

Before you increase your campaign budgets, however, there are some things you need to consider.

VAT

Depending on how your ecommerce system is integrated with Google Analytics, the sales figure might include VAT. This is important to know, because the cost figure (what Google has charged you for the adverts) probably does not.

Hence, if you have spent £50 on advertising and made £150 of sales, then the contribution to the business (after advertising costs, but before other costs) would not be:

  •  £150 – £50 = £100

It would be:

  • £150 /1.2 – £50 = £75

Product costs

You also need to consider the product costs. Google Ads knows nothing about these and relies on you to factor them into your calculation.

If your average mark-up on a product is 100% (i.e. you buy at £62.50 and sell at £125 plus VAT), when we apply this to above example, the profit is further adjusted to:

  • £75 – £62.50 = £12.50

Shipping

Finally let’s subtract the shipping cost of £2.50 and the gross margin on the sale will be £10.

Gross margin

So, on a sale of £150 will have made £10 gross profit.

Google Ads will report Conversion value / Cost of 3, which might sound okay, but is barely above break  even.

What seems like a healthy return in Google Ads, has disappeared in puff of smoke.

Optimise for profit

It is this lack of transparency that causes so many retailers to struggle using Google Ads.

It’s a powerful platform and is a very efficient way of generating online sales. But only if you optimise for profit not for sales.

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