Google Ads Measurement | The 4 Best Metrics To Track [Guide]

Alistair Roberts
Posted by Alistair Roberts on Mar 18, 2021 12:58:37 PM

According to digital marketing firms, we see up to 10,000 adverts every day.³ This explains why Google made almost $175 billion AUD in advertising revenue1 last year—roughly the same GDP as Bulgaria, Croatia, and Luxembourg combined. They’re the greatest advertising machine the world has ever seen, generating an estimated 237 million clicks for businesses every day.2

Google makes this much money from advertising for one reason—their system works. With a good understanding on how to create relevant, high-converting Google ads for their target audience, a business can see an excellent return on investment.

There’s no way for us to find out how much money has been wasted on low-quality Google ads, but it’s sure to be a lot. And for some businesses, half the problem is not knowing that their advert is bad, because they don’t know how to measure its performance. In this article, we’ll remedy this issue by providing a comprehensive guide on Google ads measurement, focusing on Google’s primary advert type: text ads that appear in their search results (although these principles work for all ad types: YouTube, Shopping, etc.) 

We’ll cover the metrics that matter the most, so that you can make improvements to your existing ads, and create high-converting ads going forward.

Why measure Google Ads performance?

Advertising is an expensive business, especially when the adverts are weak. By understanding how to effectively measure your Google Ads, you can turn low-performing, expensive adverts into high-performing superstars that generate a return for your business. You can also get a foot-up on your competitors, who are probably also using Google’s advertising system to generate income for their business.

The most important metrics for Google text ads

1. Impressions

Impressions in Google Ads

In the world of advertising, impressions are the number of times an advert has appeared for users. For Google Ads, an impression is counted when an advert appears on the Google Network, which includes search, maps, YouTube, Gmail, and on the websites of their search partners. They're also not limited by user—for example, an advert can be shown five times to the same user, and would be counted as five impressions.

Without impressions, there can be no clicks or goal conversions. They’re the starting point for every other important metric, because they provide the user with a choice—click on the advert, or don’t.

Impressions are important because they reveal potential. Every impression can turn into a click, and every click into a goal conversion such as a new enquiry, a new email subscription, or the sale of a product. If an advert is getting a consistently high number of impressions, and you combine this with a high-quality advert that targets the right transactional keywords for your business, you have a much better chance of seeing a return on your advertising spend.

Impressions should be analysed for each individual advert, and compared to adverts in the same ad group. For example, you may have an ad group that targets a particular service such as “Brisbane SEO,” so will want to compare the impressions for adverts within this group only, to make sure you’re comparing apples with apples. By going through this process, you can identify which adverts have the least impressions, and try to figure out why.

Impressions are influenced by the following factors:

  • The monthly search volume of the target keyword—is it high enough to generate enough impressions?
  • The budget of your campaign
  • The maximum CPC for the advert
  • The targeted location (a wider location provides more impressions, but should only be changed if appropriate for your business)
  • The advert’s Quality Score—a Google rating based on relevance and quality

2. CTR (click-through rate)

CTR in Google Ads

Click-through rate is the ratio of users who click on your advert, against the number of impressions it has had. It’s calculated by dividing impressions by clicks to provide a percentage. For example, if an article has 100 impressions and 1 click, the click through rate is 1%. 

As a combination of impressions and clicks, CTR is a much better indication of your advert’s quality than clicks alone. If you were just measuring clicks, you might make the mistake of comparing an advert with a large number of impressions against an advert with a low number—the advert with more impressions is highly likely to get more clicks, but doesn’t mean it’s better quality. By bringing impressions into the equation, we get a much more accurate measurement of quality, and the advert’s ability to generate a large portion of clicks. 

For Google ads, CTR is influenced by the following:

  • The relevancy of the advert based on the user’s search
  • The text used in your advert, particularly the title—is it relevant, clear, enticing, unique, and with a good value proposition?
  • The average position of the advert. The higher the position, the better chance of generating a click

The average CTR for a Google Ad is thought to be around 2%. But to get a more accurate idea of whether your CTR is good enough, you can compare it against the benchmark for your industry, as well as the CTRs of other ads you’ve created. Once complete, you’ll know which adverts need to be improved, and improve them by working through the factors listed above.

3. (Goal) conversion rate

Conversion rate in Google Ads

Impressions and click-through rates mean nothing if visitors aren’t completing your goals. They’re the final step in the user’s journey, and can often be tied to revenue (e.g. the sale of a product) or revenue potential (e.g. a lead enquiry; a collected email address).

In Google Ads, goals are called “conversions,” and can be measured after setting up conversion tracking. When working through this setup, you’ll set the most important goals for your style of business (usually product purchases or lead enquiries), and after a couple of days, be able to view conversion data against each advert you’ve created. The most important data to analyse is the advert’s conversion rate, which Google calculates by dividing the number of advert clicks by the number of conversions. For example, if ten people click on your advert and one of them completes a goal conversion, your conversion rate is 10%.

But how do you know whether your conversion rates are any good? As with CTRs, one of the best ways is to compare them against the benchmarks for your industry. If they’re on the low side, you should consider working through some conversion rate optimisation tasks for your website, such as: 

  • Improving your value proposition
  • Improving your CTAs (call-to-actions)
  • Ensuring your pricing is clear
  • Ensuring your content is useful, and answers the user’s questions/needs
  • Improving your website’s navigation
  • Utilising social proof in the form of customer reviews
  • Promoting the security of your website

You should also scrutinise the advert itself—is it taking the user to content that they’re expecting to see? Are you overpromising and under-delivering?

4. ROI

When you’re satisfied with your advert’s impressions, CTR, and conversion rate, calculating its ROI is the final piece of the puzzle.

Fortunately, for product-based businesses, Google Ads has new metrics that allow you to easily calculate ROI: revenue, and cost of goods sold. The formula for calculating ROI is (Revenue – Cost of goods sold) / Cost of goods sold.

If you’re a service-based business, it’s likely that your customers send an enquiry first, and if the sale is successful, pay an invoice later. Unfortunately, because the sale isn’t immediate, Google Ads doesn’t store the revenue, so you’ll need to calculate the ROI manually. You can use the same formula as above, but you’ll need to grab the revenue and cost of goods sold values from whichever accounting system you’re using.

Once you’ve calculated the ROI of each of your adverts, you’ll know which of them are performing well, which need improvements, and which may need to be scrapped.

Calculating ROI before you create a Google ads campaign

If you’re still deciding whether to use Google Ads for your business, it’s highly recommended to calculate your potential ROI before you make the decision, as it can save you a lot of time and money. 

To calculate potential ROI for a service-based business, you need to identify your cost per customer, your gross profit from new customers, and then use those two values to calculate your ROI.

1. Calculate your cost per customer

A. Get the CPC

Get the average CPC for your target keyword and audience. This might be $5, for example.

B. Identify your lead conversion rate

Identify the average lead conversion rate for your landing page. If you have goal tracking set up for the page, this will provide you with the number. Alternatively, try to estimate what percentage of people convert when reaching the page, as accurately as you can (small change in lead conversion rate can make big differences in profit).

For this example, we’ll use 5% for your lead conversion rate.

C. Calculate your cost per lead

Calculate cost per lead with the following formula: (CPC / lead conversion rate) x 100. 

In our example, this would be (5 / 5) x 100, which comes to $100.

D. Identify your sales conversion rate

Identify how many of your leads you convert to sales. If you use a CRM such as Hubspot, you should have access to this date. Alternatively, try to estimate what percentage of people you convert from leads to sales.

We’ll use 25% for our example.

E. Calculate your cost per customer

Calculate your cost per customer with the following formula: (Cost per lead / sales conversion rate) x 100.

In our example, this would be (100 / 25) x 100, which comes to $400.

Calculate your gross profit from new customers

Now that you have your cost per customer, you need to calculate your gross profit from new customers.

A. Identify your average sale to new customers

Using your accounting system or CRM, identify the average sale for a brand new customer. 

For our example, we’ll use $2,000.

B. Identify your gross profit percentage

Identify the gross profit percentage of your average sale for brand new customers. 

In our example, we’ll use 40% gross profit. 

C: Calculate gross profit from new customers 

Calculate your gross profit from new customers with the following formula: (Average sale to new customers x gross profit percentage) / 100.

In our example, this would be (2000 x 40) / 100, which comes to $800.

Calculate your ROI percentage

Now that we have our cost per customer and gross profit from new customers, we can calculate our ROI percentage using the following formula: (Gross profit from new customers - cost per customer) / (cost per customer x 100).

In our example, this would be (800 - 400) / 400 x 100, which comes to 100%. This means you’re earning a 100% return on your Google ad spend, and are doubling your money.

If you’ve completed the calculation and your Google Ads aren’t profitable enough, there’s two other factors to complicate the matter further: referrals from new customers, and repeat business (customer lifetime value). While you may not be making a large profit from a customer’s initial sale through Google Ads, they might be repeat customers, and also refer your business to their friends, which can make them incredibly profitable. If you can, try to factor these values into the calculation, for a more accurate result.

Summary

When Google’s advertising system is used effectively, combined with a high-converting website, and the adverts’ impressions, click-through rate, conversion rate, and ROI are consistently measured to determine performance, it can be incredibly lucrative for your business.

A note on repetition

If you’ve read our article on how to measure SEO, you’ve probably noticed that many of these metrics are the same. That’s because SEO and Google Ads are online endeavours, and when it comes to measuring your marketing success on the world wide web, impressions, clicks, and goal conversions are some of the most effective ways to do so. 

References
1. J.Clement, 2020, Google: ad revenue 2001-2018, Statista
2. Mark Irvine, 2020, Google Ads Benchmarks for YOUR Industry, Wordstream
3. Jon Simpson, 2017, Finding Brand Success In A Digital World, Forbes

 

Want to know more about measuring your digital marketing performance? Check out our comprehensive guide to Every Digital Marketing Metric You Need for your business.

Topics: advertising

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