Choose this goal if you want to achieve a certain return on investment (ROI),also known as ROAS (Return on Ad Spend). Adspert calculates the ROI as follows: conveyed profit before ad spend divided by costs. For a successful ROI optimization your AdWords conversion tracking must register conversion values.
Calculating Return on Investment (ROI) for advertising is quite similar to the general ROI formula. Here's a simplified explanation of how to do it for advertising:
ROI = (Revenue from Advertising - Cost of Advertising) / Cost of Advertising
Here's the breakdown:
Determine Revenue from Advertising: This is the amount of money you've earned as a direct result of the advertising campaign. It could be the sales generated from the campaign, new customer acquisitions, or any other monetary benefits.
Determine Cost of Advertising: This includes all the costs associated with the advertising campaign, such as ad creation, media placement, campaign management, and any other related expenses.
Calculate Gain or Loss: Subtract the Cost of Advertising from the Revenue from Advertising. If the result is positive, it means your campaign generated more revenue than it cost. If it's negative, your campaign didn't cover its costs.
Calculate ROI: Divide the result from step 3 by the Cost of Advertising. Then, multiply by 100 to express the ROI as a percentage.
Example: Let's say you spent $1,000 on a social media advertising campaign, and it brought in $2,500 in sales.
Revenue from Advertising = Sales Generated = $2,500
Cost of Advertising = Campaign Cost = $1,000
Gain or Loss = Revenue from Advertising - Cost of Advertising = $2,500 - $1,000 = $1,500
ROI = ($1,500 / $1,000) * 100 = 150%
In this example, your ROI for the advertising campaign is 150%, which means for every dollar you spent on the campaign, you earned $1.50 in return.
Remember that calculating advertising ROI can be a bit more complex in real-world scenarios due to factors like attributing sales accurately to the campaign, considering the time frame for conversions, and accounting for indirect effects of advertising on brand awareness or customer loyalty. However, this basic formula gives you a starting point to understand the profitability of your advertising efforts.