There’s been some hype in the news lately about Internet Advertising as an industry and how quickly its growing. Especially now, with the economy being down,  companies are actively searching for ways to increase the measurably of their marketing efforts, and one way they are deciding to do this is by transitioning budgets to PPC (pay-per-click) Advertising.

This is a great idea, even for B2B marketers. But I frequently discover, when taking over a new PPC campaign, that it has been mismanaged for months. It seems that many businesses love the idea of a measurable advertising medium, but they either do not have the time or expertise to learn how to properly set-up and manage their PPC accounts. What good is a measurable advertising medium if it isn’t being measured correctly? So I decided to write this post to help readers understand how to begin proper PPC management.

The Most Common Metrics Used

Typically, the following metrics are what advertisers choose to measure when running their advertising campaigns:

1. Impressions
2. Click Through Rate (CTR)
3. Cost per Click

Now, these are by no means bad metrics to use! However, simply taking them in a vacuum is a poor way to manage campaigns. The problem with managing a campaign around these metrics is the lack of conversion information. Often, adgroups or keywords that have a high CTR do not result in conversions. This can happen because the ad text is misleading, or the landing page is un-optimized. The opposite can be true as well: keywords with a low CTR can result in a high conversion rate. The bottom line is, by only using these metrics, there is no way to get the information that is needed to make educated decisions about keyword bids.

How Should You Measure & Manage?

One word, three letters: ROI. Ultimately, PPC campaigns should be run using ROI tracking to ensure that efforts are not being wasted and are generating profit. Now, ROI tracking is not built in to Adwords, so this is something that will take a little math, but is necessary to ensure that your campaigns are performing at their optimum level. With this information, nobody can tell you that your Adwords efforts are a waste, because you can show them the exact return on investment that PPC traffic generates.

What Metrics Should Be Used?

The previous mentioned metrics, along with the ones listed below, will provide all the information needed to calculate ROI and make proper PPC decisions.

1. Conversions
2. Conversion Rate
3. Cost per Conversion
4. Net Revenue of a Conversion

This information is what should be utilized when managing PPC campaigns. A keyword with a low CTR but a high conversion rate leads to a low cost per conversion, which in turn results in a larger margin on the back-end. So it is evident that simply managing a campaign based on CTR and cost per click alone leads to mismanagement. Get this information, and it becomes much clearer what PPC decisions need to be made in order to maximize revenue.

ROI Formula

The power of comparing the cost per conversion with the average net revenue (gross revenue – cost of goods sold) generated from PPC will transform your Adwords accounts. With the cost per conversion and net revenue of a conversion at an your disposal, ROI can be calculated using a standard, well known ROI formula like this:

(net revenue of a conversion * number of conversions) – (cost per conversion * number of conversions) / total cost = ROI

With this information, advertisers will know how much revenue their PPC efforts are driving, and can begin to establish processes for ongoing management and tracking. Ultimately, this is how you should be managing your PPC accounts.