Saturday, April 19, 2014

ROI Is Not King in Internet Marketing

ROI Is Not King in Internet MarketingWhenever you browse Internet Marketing forums or read campaign case studies, many marketers hail ROI as the most important metric you should look at when doing paid advertising campaigns. While I agree that ROI or your return on investment is extremely important, I will show you in this post that it isn’t the be all, end all of paid advertising and you may be leaving a lot of money on the table by paying too much attention to ROI.
Just a quick overview of what ROI or your return on investment is. Essentially ROI measures the efficiency of your investment. If you purchase $100 worth of advertising and that results in $120 of income, then your ROI is 20%. Put another way, you profited 20% on your initial $100 investment so your profit is $20. You put $50 into building a website and sell it for $75, your ROI is 50% because you earned a profit of 50% on your initial $50 investment.
So, ROI is important because it shows profit margin on an investment. All else equal, the higher return on a given investment, the better. This is common sense. So why do I get frustrated sometimes when I read discussions about ROI…let me give you an example to demonstrate my point. Let’s pretend we are promoting a CPA offer by purchasing traffic from Google Adwords (PPC).
Let’s say we invest $10 into ten different test campaigns and get two of them that have a positive ROI (hence only two are profitable). Let’s presume all else is equal and the only thing that is different is the keyword we are targeting for this PPC campaign:

Keyword 1 Campaign:
PPC Cost $10
Income $16.50
ROI 65%
Keyword 2 Campaign:
PPC Cost $10
Income $11.50
ROI 15%

So we run the two keywords and we can see that the first keyword has a phenomenal 65% ROI and the second keyword has a much lower 15% ROI. Now I hear people all the time say that people should only keep campaigns or keywords with a 50% ROI. Many marketers would glance at the two scenarios above and assume they should put more effort into the first keyword because the second one has a much lower ROI. In fact, I would bet that a large proportion of marketers may even scrap the second keyword campaign altogether.
Well, ROI is only a piece of the puzzle. We also need to look at the magnitude of investment opportunity for any given campaign. Let’s revisit the two previous campaigns and now take into consideration the magnitude we can invest in each one. Let’s say that the first keyword has a lot less search volume and therefore we can only purchase a maximum of $100 in clicks per day. The second keyword has a much higher search volume and we can purchase $100,000 in clicks per day. Assuming all else equal and the ROI remains the same as we invest more, here is the maximum profit we can get from each campaign:

Keyword 1 Campaign:
PPC Cost $10
Income $16.50
ROI 65%
Total Daily PPC Cost Available 100
ROI 65%
Profit $65
Keyword 2 Campaign:
PPC Cost $10
Income $11.50
ROI 15%
Total Daily PPC Cost Available $100,000
ROI 15%
Profit $15,000

Clearly, the second campaign ends up yielding much more profit because there is much more investment magnitude available. Clearly the ROI was deceptive in this case and the marketers who scrapped the second campaign would have missed out on a mini goldmine.
The point of this post is to point out that ROI is not the only metric you should be looking at when dealing with paid advertising campaigns.
My favorite metric and what I care about more than anything else when it comes to running campaigns is something I call MITB, which simply means MONEY IN THE BANK. I care about overall profit and am more than willing to invest in lower ROI campaigns if it puts more money in my bank account.

ROI Is Not King in Internet Marketing Rating: 4.5 Diposkan Oleh: mohamed lamdoune