Running paid campaigns requires constant eye because our money is on stake. Few hours of live campaign can drain your whole budget. It is essential that you know how your paid campaigns are performing. In order to assess your budgets, profits and campaign performance there are some key formulas which I use on a frequent basis.

Calculating Conversion Rate

(Total Conversion) / (Clicks) = Conversion RateExample(500 Clicks) / (50 Conversions) = 10 % Conversion RateNote: If you increase your conversion rate, you increase the ROI of your bids.

Calculating ROI & Profit

Ad Group Average CPC
Chocolate £1

Calculating Cost per Conversion

(Average CPC) / (Conversion Rate) = Cost per Conversion

Example

(£1 Chocolate) / (10% Conversion Rate) = £10 Cost per Conversion

Calculating Average Profit per Conversion:

In order to get your average profit per conversion, you must know first what profit you make in result of a single conversion.

(Profit per Conversion) – (Cost of Goods Sold)

Let say your Profit per Conversion is £20

Example

Ad Group Average CPC Conversion Rate Cost per Conversion Revenue per Conversion
Chocolate £1 10% £10 £20

Profit per Conversion / Cost per Conversion = ROI

(£20 Profit per Conversion) / (£10 Cost per Conversion) = 2= 200% is your ROI

Calculating Initial Bids by ROI

(Conversion Rate x Profit per Conversion) / Desired ROI = Initial Bid

Example

(10% Conversion Rate x £20 Profit per Conversion) / 100% = £2 Initial Bid

Ad Group Estimated Conversion Rate Profit per Conversion Desired ROI Initial Bid
Chocolate 10% £20 100% £2

Defining Average CPC for Each Ad Group

Local Monthly Searches x Average CPC / Search Volume = Average CPC for Each Ad Group

Calculating Value per Click

Total Conversion Value / Total Clicks =Value per Click

ROI Bidding – Calculate Your Bid

Campaign Average CPC Conversion Rate Cost per Conversion Profit per Conversion Desired ROI
Chocolate £1 10% £10 £20 100%

Max CPC Calculation:

(Profit per conversion / Desired ROI) x (Conversion Rate) = Max CPC

(20 / 1) x 0.10 = £2.00 Max CPC

Breakeven CPC Calculation:

(Value / Click) x Margin = Breakeven CPC

Desired CPC Calculation:

Breakeven CPC / ROI % = Desired CPC

Hope you found this information useful and if you do then do share with your friends.

Important PPC Maths and Formulas
Rehan Khan

Rehan Khan


Rehan is an Online Search - Social Media & Conversion Specialist. As senior marketing professional he possesses over 11 years experience in this industry. In today's world where the real commitment and client sincerity has lost its meaning, he is not ready to let go the golden era of 80's. For a peace of mind, he loves to hang around in quarries across UK discovering underwater nature as a trained scuba diver.


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