The Real Cost Of Adwords – 6 Calculations You Need To Know

Adwords is every marketer's dream. It provides metrics, graphs and stats for every eventuality. There are, in fact, so many metrics available the mountain of data produced can be a little overwhelming.

Unfortunately this all singing all dancing approach to analytics has created complacency when it comes to comprehension of the resulting statistics.

Below there are 10 simple formulas that will help you understand how Adwords costs are calculated and measured:

1. CPC: Cost-per Click

Calculation: Total Spend / Total Number Of Clicks

CPC is the foundation calculation for most Adwords campaigns. It is a great tool for understanding the basic costs of a campaign at a basic level. Most business owners have an idea of how much they are willing to pay for a lead and this simple calculation gives them a figure to work with.

CPC doesn't offer a great deal of insight on its own, but it does provide a very important building block for further understanding the costs involved in developing an Adwords campaign.

2. CPM: Cost- Per Thousand Impressions

Calculation: (Total Spend / Total Number Of Impressions) x 1000

CPM stands for 'cost-per mille' but is more commonly known as 'cost-per-thousand impressions'. This metric allows us to understand how much it costs to get an advert in front of the eyes of the people the campaign is targeted at.

CPM is useful to people operating both CPM and CPC campaigns. It gives a good insight into how many people are actually laying eyes on your advert.

Brand impressions are, of course, an invaluable tool in developing a strong, durable marketing campaign.

3. CTR: Click-through Rate

Calculation: Total Clicks / Total Impressions

A simple but hugely important calculation, 'click-through rate' allows us to understand how many people are clicking on an advert in relation to how many times it is being shown.

Click-Through Rate is important as it gives a useful insight into how well an advert is resonating with your target audience. Google relies heavily on this metric when interpreting Adrank (a metric used to assess the overall quality of an advert).

4. CPA: Cost Per Acquisition

Calculation: Total Spend / Total Conversions

Cost Per Acquisition is a metric that all marketers should find insatiably useful. It examines the relationship between total advertising spend and the number of conversions the account achieves. Using CPA it possible to set a figure on how much you are willing to spend on each sale, lead or action.

'Cost Per Acquisition', also known as 'Cost Per Conversion', is incredibly effective in evaluating the success of your bidding strategy. Use CPA to keep your advertising budget firmly in check.

5. CR: Conversion Rate:

Calculation: (Total Conversion / Total Clicks) X 100

Conversion rate helps us understand how often an ad click results in a desired action.

In Adwords this is achieved by placing a piece of dynamic code on the relevant landing page. Adwords is then able to track how many times a click results in a conversion using the formula above.

6. ROI: Return On Investment

Calculation: (Revenue - Cost) / Investment Cost X 100 (for %)

Return On Investment (ROI) is the holy grail of all the marketing metrics. ROI allows us to understand how much benefit a business is getting from a specific ad campaign. It looks at the fundamental building blocks of a basic sale, taking into account total revenue and incurred costs. It then offers a percentile figure representing how well a campaign is performing.

ROI is the most important of all of the metrics. You simply cannot afford to misinterpret or miscalculate this one!