If you are spending money on Google Adwords for your ecommerce store, you are focusing on one thing: return on investment (ROI).
But it’s not as simple as money in (spent), money out (earnings).
How do you know if your ecommerce Adwords campaigns are successful?
How do you know?
What numbers are you tracking?
…are you tracking at all?
First Things First
First of all, a business without tracking their numbers, is not a business. If you don’t know your numbers, you don’t really have a business; you have a hobby.
So, if you are running an ecommerce store, you need to know your numbers.
This is non-negotiable.
To get started, you can use Google Analytics to track the performance of your Google Adwords campaigns. Google Analytics will give you a clear picture of your business’s performance including visits, pages viewed, time on site and so much more.
Pro tip: Make sure that you link your Google Adwords account with Google Analytics so you can track what is selling well, what’s not, which campaigns/product you should be spending money on, which ads are under performing, etc.
Data is about decision making.
If you really want to be successful, you have to know your numbers.
The higher quality your data, the better decisions you can make.
Before Diving Deeper…
Before we jump into analyzing your campaigns, ask yourself this very important question:
Are my campaigns profitable?
Here’s what profitability means for ecommerce campaigns:
– Cost of Goods Sold (cost of product)
– Cost of Advertising
= Gross Margin
Here’s an example with a tshirt:
$24 = Total Revenue
– $12 = Cost of Goods Sold (cost of product)
– $6 = Cost of Advertising
= $6 = Margin
Here’s how to do this for your business:
Take the total revenue from your store
- Subtract cost of the products
- Subtract your total advertising costs
- Now you have your gross margin
Right now, we are talking about profitability with just variable costs (not as a business as a whole; ie: your time, team’s payroll, office, software, taxes, etc). Bottom line is: when you sell another product today, do you make money or lose money? Most business owners have no idea.
And if that’s you, let’s fix that right now.
In this article, I am going to break down the exact metrics I look at every day and how these metrics help me scale my client campaigns to $100,000+ per year, profitably.
5 Google Adwords Metrics
This is a very tricky metric.
Looking at this metric only makes sense if you understand metrics #2 and #3. If you are blindly trying to reduce the cost per click because you want it to be cheaper, that’s an utter waste of your time.
It becomes a vanity metric.
You start focusing on the wrong numbers.
And then 90 days later, you’re looking at your Shopify dashboard (or other backends) and scratching your head why there are a few zeroes missing in total revenue numbers…
So here’s how you need to look at the cost per click:
Optimize quality of clicks before optimizing cost of clicks. The way you do this is by seeing which keywords your clicks come from, but also what the performance of each one of these keywords are when it comes to the metrics #2-4.
If you know which keywords are already performing, now is the time to optimize cost per website clicks.
What should I do next? Find out what your average cost per click is. Reduce it by adjusting your copy to stand out from competitors, take advantage of ad extensions to increase clickthrough rate (CTR) and test different offers to increase CTR.
Based on your keywords and each product individually, you need to be able to see conversion rate of each one of your products based on the keywords you are targeting.
Conversion rate is # of orders/# of website clicks.
For example: 1 order/57 clicks = 1.75% conversion rate
This metric is important because different products, offers and keywords have different conversion rates based on a variety of reasons. There are two main influences of conversion rate: onsite and offsite.
Onsite conversions are based on:
- Product type
- Product images
- User experience
- Call to action
- And more
Offsite conversions (for Google Adwords) are based on:
- Campaign structure
- Call to action
- Keyword grouping
- And more
What should I do next? Find out what your current conversion rate is for the whole site. Then find out what your conversion rate is for each one of your products (from Google Adwords). Once you know those numbers, create a list of steps you are going to take to optimize onsite and offsite conversion rate.
This is by far one of the most metric you can have for your paid advertising campaigns.
There is something magical that happens when you know that when you spend $1, you will make $2 every time.
Disclaimer: this is only as long as cost per acquisition (CPA) is under the benchmarks you’ve set per product…wait, you have set CPA benchmarks per product right?
There are some issues with with the CPA number:
- Tracking all conversions: how do you know if all conversions are being tracked or at all? I have analyzed and optimized so many Adwords account at this point that when I look at the account, I know that proper tracking alone will decrease acquisition costs by 20% in the first 30 days.
- Tracking per ad group: site-wide CPA vs. campaign specific CPA vs. ad group specific CPA vs. product specific CPA numbers are very, very different. Knowing your benchmarks at each level is the difference between staying at $20/day Adwords campaign compared to scaling to $500-1000/day.
- Tracking changes: do you look at these numbers? Most people don’t look at these numbers…at all. Once a month as someone managing the account is not good enough. Looking weekly at the bare minimum is a minimum; ideally checking in every 24hrs and optimizing every 48hrs-72hrs as required/based on campaign performance.
There are two numbers you need to set as benchmarks when it comes to your CPA:
1) Break even CPA
2) Ideal CPA
Break even CPA is the most you can spend without losing money. When I mention this number as a target with my clients, they always get nervous because they never want to spend all their money acquiring a new customer. But this number is the first milestone of a successful Adwords campaign.
Ideal CPA is the number you would like to get the campaign to. This number is supposed to be realistic based on your business (revenue, product cost and margin, as well as what’s realistic on Adwords). If your product retails at $100, your product cost is $20 and your ideal CPA is $2, that may be an unrealistic CPA (assuming your current CPA is much higher).
What should I do next? Find out your site-wide CPA, campaign specific CPA, ad group specific CPA and product specific CPA. Then set benchmarks for break even CPA and ideal CPA per product.
Can you imagine what this metric is all about? One of the most important metrics that can define your campaign’s success is the average order value (or AOV). In other words, AOV is the average cart of each buyer that makes a purchase on your site.
Let’s say that you have an AOV of $50 with a conversion rate of 2%. That means that every 50 visitors that come to your website, 1 person spends $50. If you can increase the AOV to $60, you just increased revenue by $10 for every 50 visitors. And if you can improve your conversion rate to 3% (as we discussed at metric #3), then you are now generating $60 for every 30 visitors to your website. You can see how powerful this is.
What should I do next?
- Offer additional related products at a discount when someone adds to cart (eg. the user buys a printer, you offer him photo paper, cartridges, USB wire etc you get the point)
- Tell them how much more they need to add to their cart in order to be eligible for free shipping (e.g. You are $27.54 away from getting the products shipped for free)
- Offer them a coupon for their next purchase if they buy today products that cost over $100
- Grab their e-mail to send them related offers strategically e.g. once every week
The good news? If you use Shopify, there’s an app for all of the above
Last but not least, we have a very important metric, that could change the whole aspect of your business and increase the profitability of your campaigns. But let’s take things from the beginning.
What quality score is and why is it so crucial for your Google Adwords campaign success?
Quality Score (or Q.S) is a numerical value (from 1-10) that indicates how relevant your ads, keywords and landing pages are to a user. The Quality Score is calculated each time your ads are triggered by a search. The more relevant your keywords, ads and landing pages are, the higher your Quality Score. The Quality Score is determined by an ad’s expected Clickthrough Rate, ad relevance, and landing page experience.
The bigger the quality score, the better for your campaign. If you have a QS anywhere from 8-10, that means that you‘ve done a really good work on optimizing your campaigns and you don’t waste any money on irrelevant keywords.
The smaller the quality score, the worse for your campaign(s). Keep in mind, that Google wants two things from the advertiser:our money (of course! This is business and a very very profitable one) and the best user experience for users completing a search.
Google will reward the advertiser that has done a great work in improving their site (loading speed, relevant landing pages) and campaigns (relevant keywords, ad copy) by giving them a good quality score (over 8) and make the advertiser’s ads appear higher than it’s competitors and pay less per click.
The exact opposite happens when your quality score for certain keywords is below 7. So, make sure to eliminate all the irrelevant keywords from your campaigns.
What should I do next?
Find out all the keywords that have a quality score of below 6. Review all these keywords and try to separate them in different group of ads that will be more relevant. Keep your ad groups small, up to 20 keywords. Write relevant ads for these ad groups. Eliminate all the keywords that have a very bad quality score. Especially keywords with a QS of 1-2, are literally killing your business.
So, if you want to win the Google Adwords game, you have to be prepared for a tough battle with your direct (and indirect) competitors. If you implement and optimize the 5 metrics above, you will already be 10 steps ahead of your competition.
Tracking is everything.
If you don’t know your numbers, you don’t have a business. Period.
…So start tracking, keep tracking forever. Then come back here and tell us the before and after results. I bet you will have something to say!