DomainMartAppraisal, ValuationCorporate TrainingAbout Us
Contact Us

Why Us?

Studies & Opinions
. Infrastructure
. Marketplace
. Monetization
. Protection+Legal
. Search Engines
. Lighter Side
. Other

Connect & Share
Facebook Twitter Tell A Friend


Web DomainMart


Studies & Opinions

Pitfalls In Measuring And Implementing PPC ROI

Alex Tajirian
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

  1. who had already visited the site prior to their final acquisition, and

  2. 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:

  1. the same PPC search engine as the first visit,

  2. a different PPC search engine,

  3. another website, or

  4. a bookmark.

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 services, seeking top positions need not be an optimal rank-positioning strategy.

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 quantitative optimization.