Return on investment (ROI)

How much profit you've made from your ads compared to how much you've spent on those ads. Return on investment (known as ROI) measures the ratio of your profits to your advertising costs.

Let's say you have a product that costs RM100 to produce, and sells for RM200. You sell 6 of these products as a result of advertising them on AdWords. Your total sales are RM1200, and your AdWords costs are RM200. 

Your ROI is (RM1200-(RM600+RM200))/(RM600+RM200), or 50%.

• ROI is typically the most important measurement for advertisers because it shows the real effect that AdWords has on your business. While it's helpful to know the number of clicks and impressions you get, it's even better to know how your ads are contributing to the success of your business.
• To help measure your AdWords ROI, you'll need to track conversions, actions that you want your customers to take on your website after clicking your ad such as a purchase, sign-up or download. Try Conversion Tracking or Google Analytics, free tools to help you track conversions in your account.
• Here's one way to estimate the ROI of your campaign: take the revenue that resulted from your ads, subtract your overall costs, then divide by your overall costs. ROI = (Revenue - Cost of goods sold) / Cost of goods sold

What's ROI?

ROI is the ratio of your net profit to your costs. It's typically the most important measurement for an advertiser because it's based on your specific advertising goals and shows the real effect that your advertising efforts have on your business. The exact method you use to calculate ROI depends upon the goals of your campaign.

One way to define ROI is (Revenue – Cost of goods sold) / Cost of goods sold.

Let's say you have a product that costs £100 to produce, and sells for £200. You sell 6 of these products as a result of advertising them on AdWords. Your total sales are £1200, and your AdWords costs are £200. Your ROI is (£1200-(£600+£200))/(£600+£200), or 50%.

Why ROI matters

By calculating your ROI, you'll learn how much money you've made by advertising with AdWords. You can use ROI to help you decide how to spend your budget. For example, if you find that a certain campaign is generating a higher ROI than others, you can apply more of your budget to the successful campaign, and less to the ones that aren't performing as well. You can also use the information to try improve the performance of the less successful campaigns.