Return On Investment

Acronym: ROI

In online marketing, Return On Investment refers to the concept that online advertising is an investment from which a marketing professional expects to, at some point, see a return; usually in the form of increased revenues, or additional Orders.

Example

A marketing professional is working for a site which sells specialty dog food.

Using Google Adwords and Yahoo! Search Marketing to set up campaigns for keywords related to dog food, our marketer bids:

Keyword	Amount
dog food	$1.50
dog chow	$1.75
dog food delivery	$1.99

Within a single day, they receive 100 clicks on each keyword, at a total cost of:

(1.50 + 1.75 + 1.99) x 100 = $524.00

For their 300 clicks, they receive 15 orders for a total of $900.00 in revenue. If their profit margin is 75%, then their total revenues are

$900.00 x 75% = $675.00

At $524.00 in marketing dollars and $675 in net revenues, their return on investment is

$675.00 - $524.00 = $151.00

Which, as a percentage of spend, is:

$151.00 ÷ $524.00 = 29%

Where Conversion Tracking solutions come into play is in determining which marketing dollars are wasted.

Conversion Tracking

With Conversion Tracking, we are able to determine the following additional information:

Keyword	Amount	Clicks	Total Cost	Orders	Order Totals	Net Profit	ROI
dog food	$1.50	100	$150.00	8	$480	$360	$210
dog chow	$1.75	100	$175.00	3	$180	$135	-$40
dog food delivery	$1.99	$199.00	4	$240	$180	-$19

The only term which offers a positive Return on Investment is dog food. The other terms cost too much in our scenario and are not worth the marketing dollars.

The options for remedying this are:

• Eliminate the unprofitable keywords from the campaign
• Reduce the bid amount to a lower number to reduce the cost of the keywords
• Optimize the web site in order to increase the conversion rate of the unprofitable keywords