Beyond CPA Targets…Considering ROAS and Value per Conversion

April 4, 2016
kspteam

Just yesterday, I was looking into an account for an advertiser. He had it audited by a few marketing firms and one told him that he had a massive Lost Impression Share (due to insufficient budget) in his Shopping Campaign and that he ALSO had a very low conversion cost there.This meant Google was telling him to spend more money to get more of the available impressions and clicks. The software company was actually telling him to take money away from one of his higher CPA campaigns and apply it toward the Shopping Campaign with the lower conversion cost which seemed perfectly logical.

However, when we did our audit, we noticed that in his Analytics, his revenue numbers were very low compared to what he was spending in that campaign. His Return on Ad Spend (ROAS) was extremely low around 130%. That means he only grossed around 30% more than he paid to advertise it and his product costs were way more than what was left after paying Google so he was LOSING MONEY.

The campaign that was the best candidate for spending more money is was a product brand campaign that had double the conversion cost but a 320% ROAS. Although his conversion cost was higher, it was still more profitable and his conversions were worth a lot more than the others with the lower CPAs.

Don’t be fooled by low CPAs and conversion cost metrics. Even though they might be low and seemingly profitable, they may not generate as much money per sale. We use Shopping campaigns quite a bit and so I’m definitely not knocking the value in Google Shopping but those campaigns can sometimes lend themselves to selling single items which can result in a lower conversion value. The same thing can happen when you bid on model specific keywords using text ads. You just have to be careful and always pay attention to ROAS as well as conversion cost metrics. Now for ease of use, if you want a similar metrics in Adwords, you can properly configure your Analytics to send its data back into Adwords. Then in Adwords, you can see metrics like Value per Conversion (similar to Revenue per Transaction.) If you’d like a similar metric to ROAS, look to add Conv.Value / Cost to your columns and Value / Conversion.

Note: When looking at the various conversion metrics, you can choose to use either “Conversion” or “Converted Clicks.” The difference is that “Converted Clicks” use ONLY the “last click” to attribute a conversion while “Conversions” can come from any prior click. I use the terms synonymously but in fact, they are different. See Fig.2 below.

Converted Clicks vs Conversions

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