What is the ROI of Google Ads? Your Guide to Google Ads ROI
Google Ads is an excellent way to promote and grow your business online. In fact, 90% of consumers say that ads influence their purchase decisions. And, between Google Search ads and the Google Display Network, Google Ads reaches the vast majority of Internet users.
But digital marketing is highly individual, so you need to know exactly how much Google Ads contributes to achieving your business’s goals. Calculating your return on investment, or ROI, helps you determine this.
So, what is the ROI of Google Ads for your business? In this post, we’ll talk about what ROI means, typical ROI for Google Ads, and how to calculate ROI for your Google Ads campaigns.
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What is ROI for Google Ads?
ROI is the ratio of your net profit to your costs, or how much you earned from your ads compared to how much you spent. Your ROI is based on your marketing goals and helps you understand the impact your Google Ads campaigns have had on your business.
How to calculate your Google Ads ROI
To calculate your Google Ads ROI, subtract the amount you spent on a campaign from the revenue you earned due to the campaign. Then, divide that number by the amount you spent.
Here’s what the ROI formula looks like:
ROI = (Revenue – Costs) / Costs
Say, for example, that you advertised a product that costs $200 to produce and sells for $400. You sold six of your products due to your Google Ads campaign, so your total sales are $2400, and the total cost to produce the goods was $1200. You spent $400 on your Google Ads campaign. You’d plug these numbers into the ROI formula like this:
ROI = ($2400 – ($1200+$400)) / ($1200+$400)
ROI = ($2400 – $1600) / $1600
ROI = $800 / $1600
ROI = 0.5, or 50%
To make the 0.5 a percentage, multiply it by 100.
So, in the example above, your ROI is 50%, which means you made $1.50 for every dollar you spent.
The numbers you include in your calculations will depend on your campaign’s goals and the specific costs your business incurs.
To determine how much revenue you earn through your campaigns, you’ll need to track conversions – the actions you want visitors to take on your website after they click on your ads. Examples of conversions include making purchases, signing up for an email list, and starting a free trial.
You can track these conversions using Google Ads and tools such as Google Analytics.
Your costs will also differ depending on your business and the goals of your campaign.
If you sell physical products, your costs include what you spend on advertising and the cost to manufacture the product.
If you’re generating leads, your advertising costs are your main costs, and your revenue is how much you typically make per lead. So, if you usually make one sale for every 10 leads, and each sale is worth $50, each lead generates an average of $5.
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Why is tracking Google Ads ROI important?
Every business that runs Google Ads campaigns should be tracking ROI. Other metrics, such as impressions and clicks, are helpful, but ROI helps you measure your campaigns’ real impact on your business.
Measuring your ROI tells you whether you’re earning a profit from your Google Ads campaigns and how much your ads contribute to achieving your company’s goals.
If a certain ad is not earning a good ROI, you could stop running it or improve it using lessons learned from your more successful ads.
What is the ROI of Google Ads on average?
Getting a good number for the average ROI of Google Ads is difficult since it requires companies to share their spending and revenue earned from Google Ads. These metrics can also vary significantly by industry, advertising strategy used, campaign goals, and other factors.
Google has offered an estimate, though, for how much companies earn from their ad network. What is the ROI of Google Ads according to Google? The company has estimated that businesses make $2 for every $1 spent on Google Ads on average, for an ROI of 100%.
Google used cost-per-click (CPC) activity from a large sample of its advertisers to arrive at this estimate.
Google Ads ROI vs. ROAS
Another metric related to measuring the effectiveness of Google Ads campaigns is return on ad spend, or ROAS. While ROI and ROAS are similar, there are some important differences to note.
While ROI is the ratio of your net profit to your costs, ROAS is simply how much you earn compared to how much you spent.
To calculate ROAS, you divide the total revenue you generated from an ad campaign by the total cost of the ad campaign. You express ROAS as a dollar amount. The formula looks like this:
ROAS = Revenue / Cost
For example, if you spent $100 and earned $200, your ROAS is $2 for every dollar spent.
Want to quickly calculate your ROAS? Check out our free ROAS calculator.
How do ROI and ROAS differ?
- While ROAS looks at revenue, ROI looks at net profit.
- ROAS only considers the amount you spend directly on advertising, while ROI also considers additional costs like overhead and production expenses.
ROAS focuses purely on advertising, so it’s helpful for determining the efficiency of your ad campaigns. ROI, however, offers a wider view and tells you how profitable a campaign is for your business overall.
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How much does Google Ads cost?
The cost of Google Ads varies widely across industries, companies, and campaigns. How much you spend depends on factors such as your campaigns’ size, your CPC, your expected revenue, and more.
The average amount companies spend on ads is between $9,000 and $10,000 per month.
Companies may also spend $350 to $5,000, or 12% to 30% of their ad spend, on professional Google Ads management services and $15 to $800 on PPC management software.
CPC is an important cost-related metric to consider. With Google Ads, you pay each time someone clicks on your ad, rather than paying up front for ad space. CPC refers to the amount you pay each time someone clicks on your ad.
Google determines your CPC using your bid amount, the amount other advertisers bid, and the quality of your ad. You’ll never pay more than your maximum bid, and you’ll always pay the lowest amount needed to beat competing ads.
You’ll automatically continue bidding on relevant ad space until you reach the spending limit you set for the day or the duration of your campaign.
CPC also varies widely by industry and numerous other factors. However, the Google Search Network’s average CPC is $1 to $2 per click, and the average CPC on the Google Display Network is $1 or less per click.
Ad spend, management service costs, and management software costs are all potential items to include in your ROI calculations. While these averages can give you a general idea of Google Ads pricing, be sure to use numbers specific to your business when calculating your ROI.
Boost your Google Ads ROI with WebFX
Want help ensuring your Google Ads campaigns provide a positive ROI? Work with the pay-per-click (PPC) advertising experts at WebFX.
We’ve driven results through Google Ads campaigns for businesses across a wide range of industries, and we can do the same for your business. We’re a certified Google Premier Partner and can manage every aspect of your ad campaigns.