You can constantly adjust the ad settings based on the performance metrics such as PPC, CTR, CPM, which is sufficient to improve the performance of the ads. However, this strategy can only identify the improvement of the lead generation level but not the final purchase. So, we need to introduce the ROI and ROAS.

PPC Evaluation


Difference Between ROI and ROAS

ROI (Return-On-Investment). To calculate ROI, use your ads’ revenue to subtract your overall costs, then divide by your total costs: ROI = (Revenue – Cost of goods sold) / Cost of goods sold. For example, your product cost is $50, your selling price is $300 for each product, four products sold, and your ad cost is $100, then the calculation will be ROI=(300*4-(50*4+100)/(50*4+100)*100% =300%

When most marketers talk about the ROI, they refer to the ROAS (Return-On-Ad-Spend). This concept relates only to the value and outcome of the advertising campaign. ROAS=(Sales from Ads – Ads Cost)/Ad Cost. If the sales generated from ads were $500, then the ROAS=(500-100)/100*100%=400%. The break-even point for ROAS is 1:1; in this case, we can see 4:1, which means that for every $1 you spent on the ads, you have $4 in return.

Usually, the company will set up all the tracking in Google Analytics and link the AdWords and Analytics accounts. As a result, some marketing agencies will apply Google Analytics ‘ eCommerce ROAS Metric, which goes as ROAS= e-Commerce Revenue / Ad Spend. If we use the same metrics mentioned above, the ROAS = 500/100*100%=500%


ROAS Benchmark for PPC

ROAS may be various from different industries. It isn’t easy to compare a B2C retail business to a B2B event business. When calculating the ROAS, you need to consider the CPC, CTR, CVR. However, you need to pay attention and ensure that the CVR (conversion rate) refers to the goal you set in the ad campaign instead of the final sales. It may be the email leads, subscription, etc. So, it would help if you estimated the final purchase rate by yourself. How to do that? Companies have different solutions. Some companies rely on lead generation and achieve email conversion from those leads. So the email conversion rate can be a new one in addition to the factors such as CPC, CTR, and CVR mentioned above.

If you want to find a quick calculator solution, you can also refer to Hubspot’s online ads calculator.