Methods for Maintaining your ROI

[Nivik23]

Here's the method I use to ensure at least a certain percentage ROI on my keywords, would like to hear your comments and/or alternative methods.

This is based on having AdGroups for specific products.

I tweak my campaign for a minimum of a 25-30% ROI, but you could tweak it for whatever percentage you want based upon where your company is in it's growth cycle.

First, bid high enough so that the keyword can have its day in the sun (position 1-4) for a certain amount of time (1 month - 1 quarter).

Then you need to know a few things:

1)Closing Rate
2)Average Sale Price
3)Profit Margin

These numbers are easy to compute if you're running a e-commerce site, in my case we're aren't. We use our AdWords campaign to generate leads only and then leave it up to our internal sales staff or dealer network to close on the lead. Therefore a certain degree of internal tracking is required. The better the tracking, the more precise you can be in your AdWords optimization.

Then:

cost / (cost/conversion) = # of conversions
(# of conversions * closing rate * average sale price * profit margin - cost) / cost = ROI%

Increase the cost/conversion in the above until you reach your minimum ROI% = maximum cost/conversion

For a e-commerce site in which your conversions are the sales you closed on, then all you need to do is remove the closing rate from the above equation.

For all the keywords that are greater than your maximum cost/conversion:
(max cost/conversion) / (keyword cost/conversion) * current keyword bid = adjusted bid.

The adjusted bid will be lower by the percentage the keywords cost/conversion is greater than the max cost/conversion. This will phase out the underperforming keywords in an attempt to try to find the right position in which your minimum ROI can be met. If no such position exists, then the keywords bid will eventually bottom out until it becomes inactive and can be deleted.

You can also do this for keywords that are performing better than your maximum cost/conversion but are not in the top Ad positions in order to decrease your ROI% for greater volume. I'd much rather sell $5 million with a ROI of 5% then sell $5 with a ROI of 100%

Of course all sorts of other varibles come into play, your Ad copy, your website, etc all of which influence a keywords performance. This method assumes that you have a successful campaign going and is simply a way to trim off the fat and increase volume.

Also, if you have any keywords that haven't converted at all and their cost has exceeded beyond your maximum cost/conversion, delete them or move them into a seperate Ad group and try different negative keywords, Ad copy, landing pages and various broad, phrase and exact matches. I say move them into a seperate Ad group because if the rest of the group is performing well, I'd rather not try to fix something that isn't broken.

If in the new Ad group the underperforming keywords start performing better you can always make a hybrid Ad Group of the two Ad Groups, pause the 2 groups and run the hybrid for awhile to see if the changes you made have a positive or negative effect on the entire group.

Hope this helps and would like to hear your comments & suggestions.

NiV23