16/05/2023

Analyzing Google Ads Campaign Profitability: Key Metrics

Are you sure your Google Ads search campaigns are actually profitable? If the answer is "no", you’re not alone...

Google Ads is the best platform for advertising, data collection, reporting, and optimization. However, according to Data Driven, the vast majority of Google advertisers are either losing money or merely breaking even.

You probably already have your strategy planned, your budget established and know all about successful campaigns. However, given the previously mentioned fact, a little refreshing on how to evaluate the profitability of your Google Ads search campaigns is always welcome. And if your profitability is already spiking, these guidelines will help you keep the focus and stay on track!

Establishing your Budget and Return on Investment

The goal of Google advertising is simple: you invest money to get a sale or other valuable interaction. But how do you determine if Google Ads will be a profitable channel for your business? While profitability is a complex subject, involving everything from revenue to branding objectives to customer lifetime value, figuring out your available budget and expected return on investment (ROI) will help you get started.

1. Budget

Google requires you to provide a budget before completing the setup of your account, so you need to properly determine your budget before running any campaigns. Your Google Ads budget will be a mix of your overall marketing budget plus estimates from the Google platform.

Firstly, see if there are any areas in your marketing budget that you can free up to have more room to experiment in Google Ads. Next, use Google’s Keyword Planner to estimate your advertising market potential; Google’s tools offer details on total monthly searches, expected CTR and web sessions, cost per click, and estimated monthly ad spend. Combining these two factors you can achieve a semi-realistic picture of your expected budget. Then, after the first results roll in, you can more accurately calculate and adjust your ad budget.

2. Return on Investment (ROI)

Now that you’ve got your budget, you need to use it wisely. One of the biggest mistakes you can make on Google Ads is failing to set targets for your campaigns and understand potential ROI.

ROI is the ratio of your net profit to your costs, found by measuring valuable customer actions like page visits, leads, or purchases. However, in marketing it’s not always that simple to calculate ROI, given that it depends on the overarching goal of your campaigns and may include soft metrics like social media mentions, content shares, etc.

To get an idea of ROI before having any concrete numbers, consider these aspects of your business: How much revenue do your product and service sales produce? What channels bring in leads? Are single or multiple sales more common? Are customers typically new or recurring? What is the lifetime value of a customer?

By studying these elements and their overall effect on your business, you can determine how each action can contribute to your return on investment. Then you can estimate your potential ROI and weigh it against your Google Ads results when they come in to determine profitability.

Profitability metrics by campaign goal

First of all, it’s important to note that you should start out on Google Ads with a small budget spread across a small number of manageable ad groups. Consider using keywords that obtain high amounts of traffic to pull in data that you can then use to drive future decision-making.

The metrics you use to assess your ROI will depend on the goal of your ad campaign. Below, we will discuss the three most common Google Adwords search campaign goals and their associated profitability metrics:

1. Goal: website or blog traffic

For new businesses or businesses entering a new market, a common goal is to increase traffic to your website or blog. These are the major metrics to measure in this case:

Average position: Average position of your ad in different search engine results pages.
Clicks: The number of clicks on your ad. For PPC campaigns, you need to understand how many clicks your ads are getting and at what rate to measure success.
Click-through-Rate (CTR): How often people click on your ad, calculated by ad clicks divided by ad impressions. CTR This measures ad effectiveness and directly affects your Quality Score, which determines how much you pay per click.
Average Cost-per-Click (CPC): Average amount you pay for each click on an ad. Your cost-per-click is based on bid strategy, keyword competition, ad placement and more.
Search/display impression share: Percentage of eligible impressions your ads received. The higher the impression share, the better, as this means your ads are receiving the maximum number of impressions they are eligible for.

2. Goal: brand awareness

Do you want to position your brand against competitors, generate buzz, increase brand name recognition, or encourage users to interact (or reengage) with your brand? Then your campaign goal will be to raise brand awareness by focusing on these metrics:

Impressions: An impression is registered every time your ad is shown online (in any format: display, search, etc.) This metric can give you insight into your digital market share for an ad.
Reach: How many people are exposed to your ad.
Frequency: How often your ad is seen.
Engagements: The number of times a person expands your ad.
- - Your engagement rate measures how often people expand your ad and measures its effectiveness.
  - Your average cost per engagement is the average amount you pay for each ad engagement.
Interactions: Total number of ad interactions you achieve (ad clicks, video views). Although interaction is not a key goal of brand awareness campaigns, it can help you decide what follow up actions to take.
- - Your interaction rate measures how often people interact with your ad.
  - Your average cost is the average amount you pay for each ad interaction.

3. Goal: conversions

A conversion is when someone clicks on your ad and takes a valuable follow-up action. This could be a product purchase, newsletter sign up, app download, key page visit, form fill, etc. This is the most important type of campaign and the easiest to witness a direct effect on ROI.

Conversions: Number of conversions generated by your campaign, ad group, ad, or keywords. You can find all conversion data in Google Ads in the “conversions” column.
Conversion rate: Percentage of ad interactions (clicks, views), which resulted in a conversion. This metric tells you how often an ad interaction resulted in a conversion.
Click conversion rate: Percentage of total ad clicks which resulted in a conversion. Measures how often a click on your ad resulted in a conversion.
Cost per conversion: Average amount you pay for a conversion.
Value per conversion: Average value of a conversion.
Total conversion value: Total value of all your conversions.
Cost per Acquisition (CPA): Cost of achieving a conversion, measured by multiplying the total cost of your conversions by total number of conversions.
Maximum profitable CPA: Maximum amount you can pay for each conversion while still maintaining a profit margin. For high profits margins, your CPA must be low. For low profit margins, you can afford a higher CPA.

To measure conversions, you have to properly set up conversion tracking in Google Ads. Create a tracking pixel and install it on your website and landing pages. You’ll know where you turned searchers into leads, so you can optimize your budget around these assets.

Tips for optimizing Google Ads metrics

Now that you understand the metrics you should be studying for each campaign, how can you improve those figures? Although Google Ads has many moving pieces, there are few specific areas you can look at to make improvements:

1. Is your campaign structure boosting your results or dragging them down?

First, it’s worth mentioning that your account structure must be organized, as this makes campaign management and reporting more agile. Monitor your campaigns frequently to assess profitability. The Google Ads auction takes place in real-time, meaning search habits, user demands, bid competition, and keyword trends are constantly changing. If you’re not responsive to this changing environment as well as incoming data and results, your ads will lose relevance.

2. Is your ideal customer still part of your target audience?

It can be hard to interpret all of the metrics, and sometimes the numbers just don’t make sense. In this case, you need to go back to the source by evaluating your ideal customers and their habits. Making ads relevant to the needs of searches helps improve your ad quality, Quality Score, and Ad rank, all factors that contribute to a lower cost per click. Consider demographics like age, gender, income, geography, and language, and use data to optimize and automate bidding.

3. Is it possible that you’re wasting money and time on low performing keywords?

To further improve your audience and ad targeting, use the Google Keyword Planner Tool, search terms report, and other keyword optimization platforms to build tight keyword lists, add new keywords, pause irrelevant or low-performing keywords, and add negative keywords. This will have a considerable effect on metrics like clicks, CTR, and conversions, which heavily influence spending.

The bottom line: an optimized keyword list will help drive clicks and conversions, while a poor selection will waste your budget on useless clicks.

4. Are you taking your strategy for granted?

Undertake constant testing and optimization on your ads, pages, and assets. Test everything from ad copy, ad extensions, ad rotation, keyword match type, landing page copy and design, CTAs, and more. Optimization efforts will highly influence your Quality Score and ad rank (providing you with a better ad position and lower CPC).

5. Is all the data you collect sitting in a dusty file?

What good is all your data if you aren’t using it? You need a way to keep track of metrics, organize and interpret them. Link Google Ads, Google Analytics, Google Search Console and other tools, and make sure you’ve enabled tagging and conversion data. Google’s reports give you post-click performance data, analyze user behavior, and show conversion patterns. You’ll be able to develop valuable reports to demonstrate ROI to stakeholders.

Although many Google campaigns aren’t profitable from the very start, by continually optimizing assets and paying attention to key metrics, you can improve your Google Ads profitability and ROI. Motivated to take action and spike your profitability? Download our checklist to easily (re)evaluate your campaigns performance!