Get to the bottom of your true Internet marketing ROI
With all the variables of keywords, bids and landing pages, Internet marketing gets complicated fast, and it can be easy to lose sight of the big picture. Three strategies in particular can get lost to those in the trenches.
1) Weigh variable costs - For most advertisers, return on ad spend (ROAS) is the magic number by which all their online advertising is measured. Yet this metric doesn't account for the additional profits and market share that may be possible when you make less profit per sale.
After all the fixed costs are covered, consider what would it cost to service one more customer? Once profitability is achieved at your desired margin and current volume level, each additional sale is much cheaper. You may be able to increase your volume by 30% or more before your fixed costs go up.
2) Track gross profit, not gross revenue -Your “returns” in the ROAS equation are not accurate if you're only looking at the gross revenue instead of gross profit from every sale. This is especially true if your product catalog consists of items of widely divergent margins.
By subtracting your costs from your revenue before spitting it into your tracking and reporting applications, you are left with a clean ROAS that is true to your actual profits. By managing according to profits instead of revenue, you'll likely find a few campaigns with optimization opportunities that wouldn't have been discovered otherwise.
3) Let go of monthly budget - Barring capital constraints, when your campaigns are profitable you'll want to spend as much as possible with no budget caps. Be aware that a budget cap can often sneak in through the back door of “average ROAS.”
Let's say you make the most money when you pay $20 per sale. If you paid $30 per sale for the first half of the month, there's a strong temptation to counterbalance things and set the unofficial target at $10 per sale for the last half of the month so everything averages out.
There is a problem with this strategy. You've sacrificed your profits in the second half of the month. Once money has been spent, it is a sunk cost. Lowering your budget to compensate for overspending is misguided and will lead to lower profits.
Profit must be the ultimate goal and metric by which all marketing activities are judged.
Timothy Seward is the CEO and founder of ROI Revolution, a firm focused on paid search marketing.