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Okay, good afternoon, good morning, good afternoon, good
evening wherever you are in the world. I hope you are keeping well and safe. My
name is Uzair and in today's YouTube live stream I'm going to be talking about
how to calculate your return on ad spend, which is called the ROAS and how to
work out your maximum profitable cost per click. So these metrics are quite
important because you just can't keep on
bidding up to rank higher in the auction all the time, because you will not be
profitable. But before I get started, just a couple of quick housekeeping things, if
you are new and here for the first time and you haven't been on one of these
live streams, then a very warm welcome to you. There's a chat box on the right
hand side of your screen. If you have any questions, please put them in there and
I'll do my best to answer them for you before we switch this off. And if you are
returning, you know the drill and the format, fire away your comments and your
questions and I’ll refer to them towards the end of the presentation. So let's get
started, I'm just gonna make sure that we are all good. The screen is
working fine. Perfect. Alright, so ROAS is a very critical and
important metric when it comes to running your Google Ads or any kind of
paid advertising be it: Google, Facebook, LinkedIn, or online marketing, it doesn't
matter what kind of ads they are, the process and the calculations are the
same. ROAS means ‘return on ad spend’. So when you spend $1 or £1 or
whichever currency you're spending, how much are you getting back? If you are
getting more than one, that means potentially your, your campaign is
profitable. If you are getting less than one, then you are making a loss. But, it
really depends on your funnel and how your customer lifetime value is because
you may make a loss at the front end, but the backend is where the profit is,
I'm going to go through this in a bit more detail later on. Now, how much ROAS
should you target for or aim for? You've got obviously as, as high as possible as you
want to go, but sometimes it's not feasible. There will be a limit as to how
high you can achieve your return on ad spend and in this table over here,
which I've got on my screen, I'm going to show you how we do this. I'm going to
delete all of these so not to confuse you guys. Alright, so we've got three
columns, ROAS six X, 600% or six times. If you spend $1, you get
six back, three X, you spend one, you get three back and minimum one X, which is a
hundred percent, and you're putting in one, you're getting back one.
I've got two types of campaigns here, branded as well as non-branded. So
branded campaigns will always have a higher conversion rate for sure. Every
kind of brand campaign will have and non-branded, obviously will have a bit less.
Now what you can do is you, if you are running a campaign currently, you will
have some kind of data in your account. So you can go into your account and
don't just look at the last one week or 30 days, if you've been running for a
good few months or maybe years, try and get a good data set of about six
months or minimum three months, and see what you are getting. First metric we
will look at is the ‘average conversion value’. So this is how much when somebody
makes a purchase on your website, how much are they spending on average? Is it a
hundred, 200? And so on from your online shopping cart, you will probably,
well, you should know the number. Let's keep it simple, let's say whenever
somebody makes a purchase, our average order value is a hundred. Then what we are, what
we want our ROAS to be, the desired ROAS. So we've got three columns here, One
is for, six X, three X and one X. So we're going to put in six, three, and one. Now you can change these if you
want, that's not a problem and then you can work out your maximum profitable CPC
bid. What bid is your maximum bid that you can afford to give to Google or afford to
pay Google, to be profitable for your return on Ad spend. From your data set you
will also have a conversion rate in your Google Ads account. What is your
conversion rate? 3%, 5%, 10% and so on. Now, on average, if you are brand new to
this, and you've never done this before, on average a first time visitor to any
website selling products i.e an eCommerce website, will have an average
of around 3% conversion rate. 3% if you're hitting is
pretty good and you can aim to improve upon it. But 3% is the average
right across the board for branded campaigns. I'm going to keep it a bit
high and see what happens, so I'm going to keep it 10%. And now we've got these
numbers over here for the maximum CPC bids, which we can afford to pay, pay
Google. The formula for these is your
conversion, average conversion value, which is a hundred, divided by your desired
ROAS, which is six and you times it by 10. So you get a maximum, so the maximum bid
you can afford to pay to achieve a six X ROAS is $1.67, for three X it's the same
thing, you get 3.33,
and for 1 X, it is $10. So this is where you will need to bid so you can achieve
these profitable ROAS. Now, if I were to take the same figures, hundred will be the
same, but let's say keeping all the conversion values the same, the desired
ROAS would be six, three and one, non-branded will usually be less. And now our ROAS,
profitable CPC goes right down to 50 cents, $1 and $3. So what this is showing
you is you can afford to bid really high if you are trying to break even, and as
your return on ad spend goes up, you cannot go as high on your bidding as
possible. And what that will do is for your campaigns, to be,
you may not be very competitive in your bidding, and you may lose out in the
auction. So you need to have this fine balance of your maximum profit or your
profitable ROAS and a very competitive bid, you can't have both,
you'll never have both. And that's why most companies and most advertisers will
aim or shoot for a very high ROAS, and they may not know how to calculate this
way and they'll keep on bidding. Unfortunately, they are going to make a
loss because they will never be able to hit these
metrics for 600% or more. Now, this is what most or many
advertisers, which I see, when they come to me are doing. There is a big
difference as to if I were to copy this, all of it, and, but put them over here. So what
most advertisers do is, I'm gonna make this a different colour is they are
looking at just that first time transaction. Now for most businesses,
including ours, if we do a good job for our client, they are going to come back.
So it's a recurring income, or maybe a returning customer, right? A lot of the
clients who we get for e-commerce, what they are working their ROAS on is just a
one time purchase. They don't think, or they don't take into account, potentially
some more purchases that same customer is going to make if they were to come
back. So let's say, this is what we call a Customer Lifetime Value.
Now this does not mean that until the customer dies, it means that you need to
look at it for a longer period of time, how long a customer stays with you.
It could be 12 months, it could be 24 months. Most businesses, 12 months is
good enough on average for two years. So let's rework these numbers on the
basis of a customer lifetime value of potentially that same customer who spends
a hundred dollars and then comes back four times in the next two years, yeah. Because you will
have remarketing campaigns, you will have email marketing, you will have social
media, you'll have lots of things going on to get your customer back because
you paid that acquisition cost to Google or whichever platform you're advertising
with. You don't want them to go away after just that first purchase. So what happens is,
if keeping that average order value or conversion value the same and keeping
all the other metrics that you know exactly the same, the conversion rate etc, all we
are doing is changing the conversion value, which is the customer lifetime
value. Now you've been running, if you've been
running your business and you know that on average we are getting three or four
orders after the first order, you have to take that into account and not just work
on the first time order. Now, all of a sudden look how competitive you are
compared to that. If your competitors can only afford to pay $1 and
67 cents, whereas you can afford to pay 6.67 or 13.33 or $40, or all of these
metrics, there is no way in the world your competitors can compete with you in
the auction. Every time you're going to win and your Ads are going to show up
way more times than your competitors. So this is why it is absolutely critical
and important that you take into account your customer lifetime value and not
just work on the first transaction. You will find a lot of these big companies,
supermarkets, online stores - they will have special offers as lost leaders
because they know once they come to them, we are going to buy lots of other stuff.
The same way in a supermarket, you will have some items like bread, milk, these
supermarkets will probably sell at breakeven, or just making very minute profit
margins on it. Because we, they know when we go into the supermarket, we're not
just going to pick those couple of items, we're going to buy lots of other
stuff as well, where the profit margins are a lot higher. And that is why you
need to do the same thing, is be able to work out your customer lifetime value
right across the board, and then bid accordingly and bidding high does not
necessarily mean that Google is going to charge you this cost per click. It means
that you are going to win that auction, and you are only going to pay 1p or
1 cent of whichever currency you have one pence more than you're, the second best
competitor or advertiser in that auction. So quite often
you will find that you are bidding 13.33, but Google is only charging you perhaps
$4 or $5, it's because of that. I've got another video, which I'll put the link in
the description box as to how Google calculates that ad rank. And this is how
easy it is to work out just by doing a little bit of homework, you'll be able to
take your campaigns from here to up there and get your ROAS to the
maximum amount you want to run to, and also be able to scale because the name
of this game is whoever is able and willing to pay the most to acquire a
lead or a customer wins.That's it, you can't afford to pay the most, you are not
going to win in this game, it’s as simple as that. So keeping these numbers very
clearly in your mind, as well as on paper or in a spreadsheet, you'll be able to
work out your bids and what you need to do. So I hope you enjoyed this little
video. If you are viewing this as a recording, then please do subscribe and
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you can either ping it to me through our website or ask them during the sessions.
So until tomorrow, thank you for watching this video andII look forward to seeing i
it tomorrow. Bye for now.