Return on Investment is used to assess the returns or profitability of paid search and indeed all business investments which have tangible returns.
This calculation varies according to how accurately returns can be measured in a company. The general way of calculating ROI is:
ROI % = 100 * Return from investment (Net Profit) / cost of investment
For a paid search investment the formula is:
ROI % = 100 * ((PPC Revenue – (cost of goods sold + PPC fees )) / PPC fees
In paid search, the cost of good sold is not always known, so ROI is sometimes simply expressed as 100 * (PPC Revenue – PPC fees) / PPC fees.
A similar measure is Return on Advertising Spend (ROAS) which is calculated as Revenue/Fees.
In campaign A, ROI is positive based on PPC fees alone, but unprofitable when the margin and cost of goods sold is taken into account.
Leave a Reply