in Business, Web

Easy ROI From Google

I’m constantly impressed with Google’s commitment to providing helpful information to their customers, webmasters, partners, and users. I’ve been reading over some of Google’s materials regarding reporting and measuring advertising performance.

Most lawyers who I speak with simply don’t pay attention to things like conversions, leads, and return on investment (ROI). To me, this is the single most contributing factor to bad experiences with advertising and marketing initiatives which cause many legal professionals that many forms of advertising simply don’t work. This is no more true than when it comes to online advertising. The fact pattern usually goes something like this:

Lawyer opens adwords account. Lawyer bids on some broad match legal terms. Lawyer fails to set up conversion tracking or web analytics. Lawyer racks up a bunch of clicks. Lawyer concludes that these clicks were completely worthless. Were the clicks completely worthless? Well, because there was no tracking in place, we will never know. If only this lawyer had read some basics about measuring ROI and conversion tracking from Google:

Understanding and Calculating Return on Investment (ROI)

In online advertising, a conversion occurs when a click on your ad leads directly to user behavior you deem valuable, such as a purchase, signup, pageview, or lead.

Advertising is only effective if it generates measurable results for your business. Your Google AdWords account is an investment of time and money that you use to drive customers to your website. In this lesson, you’ll learn how to calculate your return on investment, or AdWords ROI.

ROI can also be called Return on Ad Spend, or ROAS. Your ROI can be calculated as revenue from sales, minus advertising costs, all divided by the cost of advertising. For example, if your advertising costs for the past week were US$500 and you’ve sold US$1,000 worth of inventory as a result, you have a 100% ROI for the week ((US$1000-US$500) divided by US$500). To express ROI as a percentage, you multiply the result of this formula by 100.

Determining your AdWords ROI can be a very straightforward process if your business is after web-based sales. You’ll already have the advertising costs for a specific time period for your AdWords account in the statistics from your Campaigns tab. You can also create reports via the Report Center. The net profit for your business can then be calculated based on your company’s revenue from sales made via your AdWords advertising, minus the cost of your advertising. Dividing your net profit by the advertising costs will give you your AdWords ROI for that period in time.

In other cases, your ROI may require a different formula. For example, if you’re interested in calculating the ROI for a page view or lead, you’ll have to estimate the values of each of these actions. For example, a Yellow Pages ad for your business may cost US$1,000 per year and result in 100 leads. Ten of those leads become customers, and each customer provides an average revenue of US$120. The value of each lead is therefore US$12 (US$1200 revenue/100 leads), and your ROI for the Yellow Pages ad is 20% ((US$1200 revenue minus US$1000 spent)/US$1000 advertising cost) x 100.

A simple alternative to estimating values for your leads and page views is to use a cost-per-acquisition (CPA) measurement. This method will allow you to focus primarily on how your advertising costs compare to the number of acquisitions those costs deliver. Using the Yellow Pages example again, your ads may cost US$1,000, resulting in 10 sales: therefore, your CPA for those ads is US$100. Your CPA should not exceed your profit derived from each acquisition. In the case of the Yellow Pages ad, the CPA is 20% less than the revenue the acquisitions provide.

Now some of you may be thinking, “wow that’s pretty basic stuff.” And if you fall into this category, good for you, you’re in the overwhelming minority. And for those of you who do understand the basics of ROI, are you implementing tracking mechanisms? My guess is that you probably aren’t.

Whether it’s yellow book, television, radio, the back of a bus, or Internet advertising, most lawyers I talk to simply don’t track anything regarding the performance of their advertising and marketing initiatives. And this happens despite spending literally six-figures on these initiatives annually.

Depending on your practice, measuring ROI can be difficult to execute. In some practice areas, you won’t know whether a click, lead, and client are profitable for many years. Nonetheless, this is not an excuse for failing to track something.

In the very least, you should get a good handle on what you are paying for leads or potential client inquiries. At least then you can get a general sense as to the quality of the leads as measured against their cost of acquisition.