Google Shopping About Return of Investment

When advertising on Google Shopping it is extremely important to know your targets. Every advertiser should begin advertising based on return of investment, as this allows the business to survive and grow. By using return of advertising spend (ROAS) as your target, you will be able to enjoy both profits and sales at the same time.

With Google Shopping we can measure every action a customer takes, from calls, sales, contacts, quote request etc… using all these measurements allows us to identify what the ROAS is for each individual products or even categories. This allows you to make the right decisions based on what the profits are.

All measurements can be tracked by using a combination of Google Adwords and Analytics.

While it is ok to focus on clicks, budget and other parts of advertising, the main objective is return of investment.

Why use ROAS?

When using a ROAS target, allows the you to make adjustments such as bidding, ad schedule, mobile bidding and many more settings to meet the required target. When you do not have a ROAS target, it becomes impossible to know what to do. The bigger problem is not knowing if you are in profit. Managing advertising requires a ROAS target, to ensure the business can grow at a healthy rate.

What else?

Did you know that not every converted click means it’s 1 sale at a static price. Take into consideration the fact that a sale can be worth allot more than you think. A customer can be buying multiple products, or is buying multiple different products. This increases the value of the sale allot more. You might have a fantastic cross sell product that you would never consider spending a budget on. When using ROAS, you can be spending a bigger budget on CPC than you would normally do, as the return of investment for this particular product is worth allot more.

How to calculate ROAS

ROAS is calculated by using the sales value divided by ad spend = ROAS

For example $1000 (sales value) / $200 (ad spend) = 5 or 500%

Is the above not something you can directly calculate? Than check out the table below.

Another example by using a profit value. Lets say for every product you sell via advertising, you want to earn $5 in profit. What we want to do is take the value of the product, and reduce the costs which than is the base line profit. We know we want to keep $5 as profit. By reducing $5 from the base line profit, you have the add spend. Than the ROAS is calculated by dividing the base line profit with ad spend.

So now we know with the chess set, we can have a target of 1.22 or in other words we know we can spend $22.49

sku name Price Cost Base Profit Profit Value Add Spend (Base Profit – Profit Value) ROAS
Sku0 Chess Set $49.99 $22.50 $27.49 $5.00 $22.49 1.22
Sku1 Snakes and Ladders $49.99 $26.00 $23.99 $5.00 $18.99 1.26
Sku2 Connect Game $34.99 $17.49 $17.50 $5.00 $12.50 1.40
Sku3 Dominoes Set $52.99 $31.00 $21.99 $5.00 $16.99 1.29
Sku4 Garden Tennis Set $29.99 $15.20 $14.79 $5.00 $9.79 1.51
 
Average ROAS 1.33

Different conversions to consider

When it comes to advertising, there are many parts that need to be measured, these are :

  • Sales
  • Calls
  • Contact Forms
  • Quote Requests
  • Registrations
  • and more…

All of these have a value to your business, not taking these into consideration will eventually lead into lost opportunities.

For example, if you have allot of calls and you know that around 2% convert into a sale, than these need to be taken into consideration. You might have a product or a group of products that result in allot of sales over the phone, if we ignore this tracking we will never optimize the ads based on this information.

How to calculate the value of other forms of conversions

With sales, the conversion tracking can accurately track the value of the checkout value, however other forms of conversions such as calls have no direct value. So how do we calculate the value of a call? It’s rather simple once you know how to think. If you have been selling for a while, you know how much the values are of your sales. Lets take the results of the last 90 days. If in the last 90 days you had 30 sales with a total value of $25,000. You divide the total value by the sales (25,000/30)=$833 than you divide this figure with the average advertising conversion rate. Lets say this is 2.5%, so we divide $833 with 2.5% = $20.82.

This means that every call conversion is worth $20.82, you can now use this figure as your conversion value for calls.

You can be more accurate by finding out of how many calls turns into a conversion and use this figure instead of your advertising conversion rate.

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