Most people are obsessed about how big things are or how much they are earning but seem to get lazy once there’s some cash hitting their bank account, as long as it’s “a lot” to them some people don’t really care about refining it and measuring the results yet it really is important to measure the return on ad spend you are getting in as much detail as you can so you are able to see exactly how things are running and where you are wasting money and therefore leaking profit.
To measure your Return On Ad Spend (ROAS) you need to make sure you key metrics are clearly defined, so you know just what figure makes a profit, what is a loss and what is just ticking over, some people are stunned when they sit down and take all costs into account and realise that their ideas of profit and loss per sale, lead, product or installation etc. are way off base.
Also bear in mind what you may class as a disastrous CPA, CPC or conversion ratio etc. may actually be a bargain for another, so don’t assume everyone is working to the same metrics as you are or you could end up well out of pocket if you try to compete without measuring your results accurately and you don’t know your real CPA limitations.
We have a client in a very competitive market who is happy to break even and make zero profit ! Yes that’s zero, nothing, nada, nil, zlich !! whilst yet another client demands a minimum of 100% ROAS or he wants to ditch that keyword or adgroup and move on.
The zero man is very happy to make nothing on the way in as he’s really sat down and worked out the buying profile of his customers so knows that from PPC generated users he has a 40% repeat order rate over the first year, then 25% over the second year so he knows is actually able to pay far more than his competitors are willing to for the initial sale.
His competitors probably think he’s crazy but they are most likely just looking their stats on a cash in versus cash out on a checkout per day/month at most basis so mr zero isn’t as daft as he would appear as he has huge market share which helps him buy stock cheaper due to the volume he’s doing now which expands his profit margin on resales and meaning he can pay yet more to attain customers
Zero man has calculated that a £20 CPA isn’t so bad when the average order value is £38, his average profit in that is around £20 per order of that so it’s a break even but for every £2000 he spends in year one he’ll get another 40 orders for an average profit of £20 each in the first year then another 25 orders for £20 profit in the second year after from that initial break even CPA of £20 so he’s looking at around a £1,300 profit over two years from a £2000 spend so a 65% ROI and he’s not been trading long enough to measure year three yet.
We’ve all been used to making excellent double if not treble digit daily returns on our ad spend, sometimes hundreds of percent, as well as more real word figures as of late, so maybe this long view is what is going to have to adopted for some sectors !? after all 65% ROI over two years would be amazing in some businesses, it’s just that we’ve been spoiled for some years so maybe new models will have to evolve to compete, it’s not easy especially when Google is constantly turning the screw, it’s a bit like an artificial environment on AdWords sometimes now as Google dictate the bids to a degree so knowing your CPA and ROAS has never been more important.
