> how much your online advertising brings in?
Let’s learn how to calculate and compare the ROI (Return On Investment) for 2 different online ad campaigns : Display advertising (banner) versus Sponsored Link.
- Order made by a customer : 30$
- Gross margin on that order : 6$
- Display – CPM (cost per mille – price for the banner being displayed 1,000 times) : 2$
- Display – CTR (click though rate) : 1% (so 1 click is about 0.20$)
- Display – Conversion Rate : 4%
- Sponsored Link – CPC (cost per click) : 0.10$
- Sponsored Link – Conversion Rate : 3%
Your web analytics tool you’ll get to know whether that purchase was made by a customer who arrived on your site thanks to a display ad banner or a sponsored link. Accordingly you can calculate the ROI for each lever !
Display ROI = [margin / (CPM / CTR x 1,000)] x Conversion Rate
= [6 / (2 / 1% x 1,000)] x 4%
Sponsored Link ROI = [margin / CPC] x Conversion Rate
= [6 /0.1%] x 3%
These two formulas are essential to remember.
Note that WA tools (ex. Google Analytics) do NOT take in consideration the notion of multiple visits – i.e. when a user makes a 1st visit via a banner, a 2nd one via a sponsored link, a 3rd one via direct access, etc…
In other words, a conversion (= achieving a goal, ex. a purchase) will be attributed to only one channel. That’s how you might keep in mind that every single visit is important for conversion: be careful with suppressing or reducing advertising budgets that necessary for conversion process.