Pitfalls In Measuring And
Implementing PPC ROI
July 23, 2005
Return on investment (ROI) is becoming widely
used measurement for evaluating the performance of online ad campaigns.
However, advertisers need to be aware of a number of pitfalls in
such a measurement that are outlined below. Moreover, advertisers
need to bid on rank placements that maximize each keyword’s ROI.
In general, ROI can be defined as
where, profit is measured over a period of time
and ROI is typically annualized to make it easier to compare alternative
investment opportunities. For online pay-per-click (PPC) advertising,
investment represents the total PPC cost of an advertising campaign
over the same period as that of profit.
There are three issues with such a measure that
need to be addressed: (1) a visitor may return to an advertiser’s
site at a future date to make a purchase; (2) demand for certain
keywords are seasonal; and (3) a visitor needs to be “acquired”
in that she would not have visited the site were it not for the
PPC advertising link. Thus, visitors who clicked on a link, but
would have visited the site irrespective of the PPC advertising
represent “bad traffic.”
The asynchronicity between the time of click and
purchase can be addressed by keeping track of visitors through cookies
or their IP addresses.
Given that advertisers have limited control over
who visits – through opting to restrict ad distribution on other
sites – aggregating traffic from acquired visitors and bad traffic
overstates profit, which, in turn, inflates the ROI.
Due to the temporal nature of purchases, advertisers
need to segment purchasing visitors into two groups. Those
who had already visited the site prior to
their final acquisition, and
whose first visit was through a PPC link.
Each of the above two groups should also be segmented
based on whether the source of the purchase referral is through
a link from:
the same PPC search engine as the first visit,
a different PPC search engine,
another website, or
Visitor segmentation may be further refined by
keyword and product type.
Advertisers also need to maximize their ROI by
considering various rank positions for each keyword. Although price
wars for the top three positions can be practically eliminated through
BunldedPPC.com services, seeking top positions need not be an optimal
Although a top ranking increases traffic, the
CPC may exceed the average profit per visitor. Thus, the profit
maximizing position should take into account the volume of traffic,
CPC, and average profit per visitor. Moreover, as monthly keyword
performance and traffic data become available, to further improve
ad placement, measurement variance can be taken into account using