Do you know the value of a conversion? It may seem like a basic question, but there are many factors to consider.

For example, ecommerce advertisers may determine the actual value of a conversion as the purchase price of an item. If a person buys a $100 widget from your site, then the value is $100. But in the real world we know there are other expenses incurred including overhead, shipping, etc.

If you are participating in online advertising, a way to calculate a value of a conversion is to look at Return on Ad Spend (ROAS). ROAS is simply dollars sold divided by dollars spent.  It means how many dollars you are getting back for every dollar you spend. Going back to our widget example, if an advertiser spent $20 for advertising on that widget, the ROAS would be 5. 100/20 = 5.  For every dollar you spend, you are getting $5.

Return on Investment (ROI) is another way to calculate a conversion’s value. The formula for ROI is (Revenue – Spend) divided by spend. This is a way to determine what percentage of spend you are getting back as profit. If you spent $20 on advertising a widget that sold for $100, to calculate ROI take ($100-$20)/20 * 100 = 400%.  ROI should be as high above 100% as possible. Also, remember to take the lifetime value of a customer into account when examining the value of a conversion.

Regardless of how you measure your success, the important thing is that you are taking steps to track and improve results. Making sound decisions on what efforts are working and not working will surely help to boost your bottom line.

What are your advertising goals? What is your return on investment? How much are you willing to pay per conversion? All of these questions seem pretty straightforward; however you might be surprised how many advertisers can’t answer them.

Defining your goals should be a priority in any form of advertising: online or offline. While traditional advertising has always had more barriers to tracking performance, online advertising offers ways to evaluate performance that some businesses might not be using.
 
Define what your conversion points are. Do you want your site visitors to sign up for a newsletter, become a member, or make a purchase? Next, decide how much you are willing to pay for that conversion.  You may have many conversion points on your site and each one may be worth more or less than others.

What do you want to track? With the transparency of online advertising, you have the ability to track just about any metric you want. You can track how much revenue was brought in by a particular search engine, such as Google or Yahoo. You can even determine which keywords are generating conversions.

Once your goals are clearly defined, you can then begin to determine how effective your advertising is. Are you making a profit? What is your return on investment?

Investopedia defines ROI as “a performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments”. You can easily calculate your ROI by using the following formula.

For example, if you earned $18,000 from your Google paid campaigns and you spent $4,000, your return on investment would be 350%.

If you are able to determine if your goals are being met, you can easily begin to optimize the performance of your efforts. If you are not seeing a return, you can also determine what efforts you should not continue or work to improve.

If concentrated visibility in front of a segmented demographic is one of your PPC goals, Demographic Exclusion is the vehicle that can help get you there.  Age and gender segment exclusions are just one of the tactics that the top search engines are providing advertisers with to help refine their PPC campaigns.  Options for targeting vary by engine.  Check out Katherine Bennett’s recent post for more on the details.

Google has been rolling out similar features at a higher rate since their acquisition of DoubleClick was solidified.  With more demographic data available form a higher volume of publishers, Google is able to offer smaller advertisers (budget-wise) the opportunity to target their core demographic with a minimal cost of entry.  While higher budgets will get you more visibility, it is possible to be effective with modest budgets as well.

Demographic exclusions can be implemented quickly and easily, from a technical perspective.  However, it is important to know your audience and even to have solid evidence to support your exclusion choices prior to implementation.  Have you profiled your customer base?  Reviewed demographics for the websites you are advertising on? Be sure to do your due diligence before testing.

To adjust your demographic settings in AdWords, select the campaign (available for content only at this time) and click “Edit Campaign Settings”.  On the Edit Campaign Settings Page, Demographics are located within the Networks and Bidding section.  In the example below, we have excluded all known users up through age 34.

After two weeks, we saw Click through Rate increase by 175%. See below for a comparison as shown in AdWords Account Snapshot report.

Although ads within this campaign received fewer impressions, we have eliminated known unqualified users from clicking our ads.  From here, we can refine our Click through Rates even further by segmenting into gender-based ad copy.  One option is to set up a duplicate campaign, each targeting either Male or Female users.  Ad copy should reflect the audience being targeted.  For example, an ad targeted toward Males for Mother’s Day gifts could be:

Browse Thoughtful Gifts
Get Your Wife What She Really
Wants For Mother’s Day This Year!
www.ClientSite.com/MothersDay

A Similar approach should be taken with display ads.  Use male-themed images to attract your male audience and female-themed images to attract your female audience. 

If you have not checked it out already, I highly recommend taking Demographic Exclusions for a test drive.