In our last video and blog post, we talked about the 4 essential ingredients needed if advertising on Google Ads will even work for you. If you miss just one of those four ingredients your campaigns may not be profitable.
Unprofitable campaigns eventually take your marketing budget to zero and that’s not good. Marketing campaigns that can breakeven at a bare minimum or better can be run in perpetuity (forever theoretically).
Let’s review briefly-
You need the following 4 ingredients as a basis to succeed on Google Search Ads:
- Enough Traffic- There have to be enough people searching for your product or service.
- Commercial Intent- Those searching need to be doing more than research, they need to eventually purchase from you.
- Economic Viability- The math has to make sense (ROI positive campaigns)
- Google’s Ad Policies- You can’t have a product or service that violates any of their policies (prohibited products, dangerous products, etc).
This week I want to take a closer look at #3. Making sure your campaigns are economically viable are critical.
Breakeven or profitable can be run forever. Campaigns that lose money need to be paused unless you have a fancy strategy with deep pockets for
All it takes is a little simple grade-school math and knowing where to look and you can make sure every ad campaign is held accountable.
Every Lead and Sale Need to Be Tracked
First things first, you can’t have accurate reporting without accurate numbers. As they say in the accounting world, good numbers in means good numbers out, conversely bad numbers in mean bad numbers out.
I won’t get into it too much in this week’s post because I want to save it for another post and video when I have an opportunity to go into more detail.
But just know each time your Google Ads campaign results in a lead or sale, you need to make sure as close to 100% of them are captured and tracked back to each campaign so you know if they are performing accurately.
A Simple Example of Campaign Math
At a basic level, assuming you have an accurate count on the number of leads/ sales for any one given campaign you will need the following basic information (going to calculate by month but you can do any timeframe):
- Total Google Ad Sales
- Total Gross Profit (Revenue minus COG- cost of goods sold)
- Total Adspend
- Total Commissions paid out (if any)
Note: Depending on your sales cycle, sales do not always occur in the same month as the adspend (reinforcing the need for good tracking like mentioned above to properly assign sales performance).
So let’s say you have a Soap Company and spent $1,750 in Google Adspend. Let’s also assume it resulted in $6,000 in sales and after subtracting the COGS you are left with a 35% gross profit margin and proceeds of $2,100. Now subtracting our the $1,750 in adspend and you are left with a profit of $350.
This simple example means that while you haven’t made a winfall profit you certainly have a campaign that can be kept running theoretically forever as long as these results continue to perform at roughly this same level.
A Real-Life Example of our Google Ads Performance
Now that we have the simple example out of the way, let’s move on to a real-life example and one that happens to be our own Google Ads performance over the last few years.
This shows by month the performance of all of our campaigns together. So this is multiple campaigns for different products and showing the total performance.
Production Prints Google Ads Spreadsheet
I encourage you to take a look at this real-life example to get a basic understand of how each sale and lead is tracked.
There are a few things to point out to help give more context to this example so I will list them off here:
- This includes all campaigns. Some of which are consistently profitable and other new campaigns we use to experiment with. Those experiments may product new fruit or they may be loser campaigns and need to be paused.
- Inconsistencies- You will notice some months we do really well and other months we show a loss. This will depend on your industry and vertical due to seasonality, etc. The main takeaway here is that at the end of the year it all has to average out and be ROI positive. You can’t have only big wins and never have losing campaigns. If only life was that easy…
- This spreadsheet only counts the first sale by a new customer and does not take into consideration repeat orders. We really want to make sure to have campaigns profitable from the beginning since we are never guaranteed a repeat order. But when we do get repeat orders, that is the bread & butter!
Last Thoughts
As you can see, there is a lot to chew on here, but I did want to give you some extra special insight into the inner workings of our own campaigns.
You can see there is no straight line and just like with the ‘buy-and-hold’ strategy in the stock market you have to be able to weather the ups and downs of the market for your industry.
But over time the more experience you get the more you can build up an advantage over your competition and eke out more gains.
Marketing is an incremental journey and it can take time to dial it in, but once you do it is the catalyst for growth and scalability.
Hope you found this helpful! -Jeff