The Only Two Metrics That Matter in Google Ads
There are only two numbers that you should use to measure success in Google Ads: Cost per Conversion and Return on Investment
Google Ads is currently the single most important marketing tool in the world. Don’t believe it? In 2021, over 70% of national marketing spend for businesses got put towards digital marketing channels. Google accounted for an estimated 28.6% of the total digital advertising revenue generated in the United States and was the largest digital ad publisher in the country. Google made over a whopping $200 billion in advertising revenue in 2021, and Google Ads is the channel that facilitated that revenue. Digital marketing’s share of the overall marketing industry grows every year, and Google has positioned itself as the largest player in the game.
Google has generated plenty of criticism of its advertising platform, but ultimately Google’s market share in the digital marketing space is a result of competitive advantages over other competitors. The second largest digital marketing platform is Facebook Ads, and one of the primary advantages of using Google Ads over Facebook Ads is the pricing model.
Facebook Ads charges you based on number of impressions or views, whereas Google Ads only charges you if a user interacts with your ad by clicking a link. Google’s model ensures you are only paying for users who interact with your ad, while Facebook’s model works more like a digital billboard; you are paying just to be there regardless of what type of engagement it drives.
Google users are also generally more intent-driven (i.e. they are searching for something related to your business already), whereas social media users usually receive ads passively, not actively seeking out a service per se. Google Ads is a better option if you want to reach the target customers at the time of their purchase decision.
Google has other perks as well. It has become the go-to place to provide or read up on business reviews, surpassing Yelp and the Better Business Bureau. Its Google Maps product also gives your business the opportunity to promote physical location(s) on the world’s most popular mobile map tool (with 80% of total market share). The result? Google Ads users enjoy the highest average return on investment of all major digital marketing platforms.
Not All Fun & Games: Drawbacks of Google Ads
While Google has been the marketing engine that has provided the most success for its customers, success on Google Ads is far from guaranteed. If you are not careful, you can spend a lot of money with no results to show for it. Google Ads is a complex platform to master, and there are many dimensions to consider. When creating a Google Ads campaign, a properly-managed campaign has to take into consideration device type, user location, keywords, ad text, images & videos, time of day, day of week, extensions, landing pages, bidding strategy, Google policy restrictions, and so much more! It can become time-consuming and difficult to optimize with little to no experience.
As if the overwhelming number of levers to manage on Google Ads is not enough, conversion tracking is not always intuitive either! Ultimately, driving more end-of-funnel sales is what Google Ads is all about. Depending on your business or the tools you use to monitor sales, reporting on how much of your sales is being driven by Google Ads is not always simple or even possible. Many businesses end up only tracking form submissions, phone calls, and similar up-funnel events so they can loosely estimate the impact of Google Ads.
Because there is so much to consider when running Google Ads, people often treat it like their car; they know it works, but they rely on a mechanic to ensure everything runs smoothly! Google Ads management services are available everywhere, and the digital marketing industry has become oversaturated with dime-a-dozen digital marketing firms looking to make a quick profit off of the average business owner’s lack of knowledge.
We advise you proceed with caution when looking for help with your Google Ads- ensure you are working with a Google-certified partner like Render Analytics.
The Wrong Metrics to Follow in Google Ads
One of the most common mistakes both business owners and digital marketers make is focusing on the wrong metrics. Impressions and impression share are examples of metrics where people tend to place too much emphasis. In Google Ads, impressions represent the number of views your ad receives. If someone saw your ad- even without clicking on it- then you collected an impression. Impression share is the total impressions your ad collected as a percentage of the total impressions your ad was eligible to show up for based on keywords and relevant filtering criteria. In other words, what is your ad’s slice of the total pie of possible relevant impressions?
These can both seem like important metrics; after all, this impacts the total size of your audience. But the reality is that whether you are exposed to 1 million visitors or 100 visitors, if both scenarios generated 5 sales, then both scenarios had the same impact on your bottom line. Of course it is good to grow exposure, but for most businesses, Google Ads is ultimately about driving sales.
Perhaps the most common metrics to be given an outsized weight of importance are clicks and cost per click. A click in Google Ads is specifically a click on at least one link in your ad, whether that be a link to your website, phone number, or an extension. Cost per click is simply your total ad spend divided by the total number of clicks. Google Ads’ pricing model is based on clicks, and unlike impressions, you actually pay based on the number of clicks your ad generates. In that sense, clicks are important to monitor because that is the action where the payment to Google Ads takes place.
But similarly to impressions, clicks don’t define sales. You could get many clicks to your website or phone number, and if none of them generate sales (or if you don’t have the data to even measure if clicks are leading to sales), then you are throwing money away on an action that does not inherently bring financial value. If your goal is to increase sales or conversions and not simply exposure, then clicks themselves do not define your success on ads and they should not be used to measure success. In the same sense, your cost per click does not matter because if you are paying for low-quality clicks that will not convert, then it doesn’t matter if you got those clicks for a cheaper price.
This is where it gets tricky- technically even the total number of conversions or new customers/transactions you acquire should not be the metric you use to evaluate and optimize Google Ads. But isn’t that what it is all about? Getting more sales or conversions? Yes- that is true. But the question we must ask ourselves is not how many conversions we can generate, but rather 1) how much does it cost to generate a conversion and 2) is the cost of a conversion worth it based on the amount of profit generated as a result of that conversion? You could make 100 sales, but what if you are losing money on those sales because the cost of getting those conversions was more than the revenue generated?
The First Important Metric: Cost per Conversion
And this leads us to our first of the two metrics that truly matter in Google Ads- cost per conversion. Cost per conversion is the total amount in Google Ads cost you spent divided by the total number of conversions you generated from Google Ads. In other words, cost per conversion is a growth metric that measures the aggregate cost of a user taking an action that leads to a conversion.
Cost per conversion is one of the two critical Google Ads metrics because clicks and impressions do not drive sales- conversions do. Conversions, if tracked correctly, are your end of the funnel metric that are your ultimate measure of success. This is your sale, your payment, your donation, or anything else that is the ultimate conclusion of a successful lead. This is the action you want to achieve as a result of using Google Ads in the first place.
By focusing on the cost per conversion rather than the total number of conversions, we are putting ourselves in a position to quantify the financial impact from Google Ads. If you owned a nail salon and generated 20 customers last week from Google Ads, that might sound good on the surface. But let’s say an average customer is spending $50 at your salon per visit. And let’s say the cost per conversion was $75. In this scenario, you are losing $25 per sale (and even more considering your other costs like labor). So you gained 20 new customers, but you lost at least $500 in net outcome. This is why the cost per conversion is so critical.
Depending on the nature of your business, what you will track as a conversion might vary. For e-commerce and product-based businesses, it is relatively straightforward; the purchase action of the project is the conversion. For service based conversions, it might be an appointment booked and scheduled or a payment received. Regardless, you ideally want to get your tracking as close to the sales exchange itself as possible.
But what if you don’t have the data you need to track your sales as conversions? For example, a lot of small businesses- especially service-based businesses- don’t have a completely interconnected sales funnel where Google Ads connects with a POS. For businesses where a lot of leads get done through multiple steps, we often have limited ability to track conversions all of the way through. In these cases, phone calls, form submissions, and demos booked are common conversion actions to track. In these cases, you are really tracking cost per lead. This isn’t ideal, but we will discuss ways you can extrapolate cost per conversion from cost per lead later in this article!
So we know cost per conversion is important, but how do we optimize cost per conversion in Google Ads to get the best possible results? To ensure you are optimizing cost per conversion on Google Ads, follow these steps:
Change Setting to Maximize Conversions: Once you have run a campaign long enough that you have data for many historical conversion actions, you should reconfigure that campaign’s goal to be “Maximize Conversions” in the campaign settings. This will ensure your campaign focuses on getting the most possible conversions based on the budget you have. If you have multiple conversions, this configuration will weigh them equally. If you feel that not all conversion actions are equally valuable, you have two options. You can either change your campaign’s goals to focus only on the preferred conversions, or you can change your less-preferred options into a “secondary conversion”.
Set a Target Cost per Conversion: Once you have configured your campaign to optimize conversions and you let that run for a few weeks, you should now set a target cost per action (“Target CPA”). Usually, Google Ads will recommend a target based on your historical data, and having more historical data really comes in handy here. When setting up your Target CPA, be mindful that this can influence the number of conversions that you can expect to achieve. Setting a target that’s too low, for example, may mean that you drive fewer conversions. When used correctly, businesses using Target CPA bidding tend to see a significant decrease in cost per conversion.
Monitor Budget Impact: The Target CPA configuration works better with a budget that is at least 5 times the target figure. This gives the tool more bandwidth to provide results. With that in mind, monitor any budget increases to see if there is a point where cost per conversion actually goes up as a result of an increased budget. At that point, you likely are best off trying new locations or new segments because this is a sign of potentially overspending based on the size of the potential market.
The Second Important Metric: Return on Investment
The truth is cost per conversion is important, but only one part of the equation. Return on investment represents the amount of money you make from Google Ads after taking into account both the revenue made from the acquired customer and the cost associated with acquiring that customer.
You can calculate ROI for Google Ads by taking the total revenue generated from Ads for a period of time and dividing it by the Google Ad spend budget (and any other acquisition cost) for that same time period. On Google Ads, the average ROI across all users is about 2X, meaning the average Google Ads account is generating $2 for every $1 spent in marketing spend. Render Analytics generates an average ROI of 4X on Google Ads for our customers.
Return on investment is the most important metrics not just for Google Ads, but in marketing generally. By taking into account net profit as opposed to only revenue or cost, ROI ultimately determines whether a marketing strategy is profitable.
In Google Ads, you can better track ROI by including a monetary value for your configured conversions. If your conversion action being tracked is the actual sales event itself (i.e. e-commerce sale), then you can directly connect your conversion to accurately pick up the value of each sale on an individual level. You can also uniformly apply a static monetary value to a conversion action if that conversion is worth the same amount in revenue every time or if you are estimating based on average order value.
If your conversion action is not the sale itself but rather a lead funnel stage, you can still apply a value to your action. For example, let’s say you are a service-based business like a moving company and you prefer to schedule appointments over the phone. You can make phone call clicks both on the ads themselves and on your website tracked as conversions. The phone call itself is not necessarily a sale, but it is something that you can reasonably link to Google Ads for optimizing purposes and for purposes of measuring the marketing impact.
If you are going to go with this approach, you need to understand the value of a phone call. You can do this one of two ways. The first way is to use third-party tools to track your phone call data and then manually (or through custom development work) work back to see which phone numbers from ads ended up as customers. This can be a technically difficult or tedious task to do, but it would result in more accurate results. The downside is that because the end conversions themselves aren’t being included, Google Ads can’t optimize based on this manual reconciliation. This can be a useful technique if you have multiple conversions like this (i.e. phone calls and form submissions) and you’d like to know which is more valuable. You can then toggle your Google Ads settings to make the less-valuable conversion configured as “secondary”.
The second method is a one-time or ad hoc calculation of your lead-to-conversion rate and assigning an average lead value based on the percentage of leads that close on average. Going back to the moving company example, if it turned out that 50% of the phone calls generated from Ads ended up becoming customers, then you can simply just set the value of the phone call conversion in Google Ads to 50% of the value of what you would have put if you were tracking the actual sale.
In Google Ads, we optimize return on investment a little differently than optimizing based on cost per conversion, although the results are often similar. To ensure you are optimizing return on investment on Google Ads, follow these steps:
Change Setting to Maximize Conversion Value: Once you have run a campaign long enough that you have data for many historical conversion actions and you have value-tracking for those conversions, you can reconfigure that campaign’s goal to be “Maximize Conversion Value” in the campaign settings. This will ensure your campaign focuses on getting the highest possible total conversion value based on the budget you have. If you have multiple conversions, this configuration will weigh them based on how much each conversion is worth. If you feel that all conversion actions are equally valuable, you are better off using the “maximize conversions” setting instead.
Set a Target Return on Ad Spend: Once you have configured your campaign to optimize conversion value and you let that run for a few weeks, you should now set a target return on ad spend (“Target ROAS”). Just like the “maximize conversions'' setting, Google Ads will recommend a target based on your historical data. Similarly, ensuring the target number you set can play a major impact in how effective your campaign will be. Do not go too high or too low based on the recommendation from Google Ads!
Fine Tune and Monitor: There is no doubt that the optimal Target ROAS will fluctuate over time. It will take a consistent commitment to monitoring and correcting for these fluctuations. Remember that the goal is to make sure you are getting enough revenue based on how much you are spending on ads. The ultimate question is if the profit is worth it relative to the opportunity cost of spending time or resources elsewhere.
Properly-Configured Google Ads in Action
When Render Analytics manages Google Ads for our clients, everything we do is about decreasing cost per conversion and increasing return on investment. We built in-house algorithms that generate recommendations to optimize these two metrics. As a result of focusing on these critical metrics, we are able to outperform the average Google Ads user. As stated earlier, the average Render Analytics customer is getting a 4X return on their total Google Ads investment. Clients who were previously using Google Ads prior to working with us see a 15% drop on average in cost per conversion within three months. By focusing on the correct metrics, our Google Ads management clients have generated a healthy profit.
Urban E Recycling- A Case Study
Let’s take a look at these concepts in action with a concrete example. Urban E Recycling is an electronic recycling company, and they ran Google Ads for four years with low to moderate results. Urban’s business model works by offering to pick up and recycle electronics such as computers, office printers, and hard drives for no cost to the individual or company looking to get rid of old electronics. They make a profit by taking valuable pieces of the electronics and reselling (and recycling) them to companies that could reuse those pieces for new products. Urban’s goal is to collect as much value from electronic waste as possible, which means scheduling as many pick-ups as possible.
The value for a customer varies widely depending on the size of the pick-up, the electronics being recycled, and whether supplementary services like hard drive shredding or data destruction are included. Because of the nature of Urban E Recycling’s business, it is impossible to keep track of the value of each individual pick-up. Scheduled pick-ups are coordinated so that as many electronic recyclables can be picked up as possible within a single trip, so measuring and recording inventory from individual pick-ups is not practically feasible.
Before we started managing Urban E Recycling’s Google Ads account, they were not abiding by the strategies suggested in this article. They were placing equal value to all of their conversions when there clearly was no equivalence; phone calls were being treated as equally valued to confirmed scheduled pick-ups. Duplicates were being tracked when one user completed multiple conversions. They weren’t differentiating between the value of different keywords. There was no tracking of return on investment or how much money was being made or lost.
After taking over Urban’s Google Ads account management, the first thing we did was acknowledge that not all conversion events were equal. In fact, we decided to make all conversions except for scheduled pick-ups (the official sign-up is on the website) secondary. The entirety of the Ads campaigns were now only identifying one conversion action as primary. Because of this, we decided to go with a “maximize conversion” strategy that focuses on reducing cost per conversion.
We also identified two types of customers: big commercial customers with large-scale needs and smaller residential customers who usually were recycling one to two items. After doing some calculating, we estimated that the average value of any given residential pick-up was around $200-$300, with commercial pick-ups being worth thousands of dollars on average.
As it turns out, commercial clients were targeting a slightly different set of keywords on average from residential customers. It was decided to target each of these two niches with separate campaigns, as the keywords, services, and overall messaging differed between the two segments.
Three months after configuring the campaign, the results were undeniable. We had managed to reduce the cost per scheduled pick-up by around 80%, and the return on investment now fluctuates month to month between an absurd 25X and 30X, meaning Urban E Recycling is now making $25-$30 in revenue for every dollar they spend on Google Ads. This is the power of focusing on the right numbers!
There are a lot of great resources out there for Google Ads, but the best place to start is to get in the tool and learn for yourself. If you are interested in learning more about how Google Ads fits into a larger customer acquisition strategy, give this article a read!
If you are interested in trying out Google Ads but do not want to manage it yourself, schedule a free consultation with Render Analytics to talk about your individual needs. Sometimes it is better to delegate to trusted hands rather than trying to manage everything yourself!