How real costs of Google adwords are calculated?

Google AdWords is an advertising service by Google for businesses wanting to display ads on Google.

The AdWords program enables businesses to set a budget for advertising and only pay when people click the ads. The ad service is runned which is largely focused on keywords by digital marketing experts providing SEO services. AdWords is every marketer’s dream. It provides graphs, metrics and stats for every person who runs a Google AdWords campaign. Multiple metrics provide mountain of data with analytic where your ad was being viewed.

So let us go through important formulae in Google AdWords.

1. CPC: Cost-per Click

Formula: Total Spend / Total Number Of Clicks

CPC is the very basic calculation. Almost any business owner has an overview of how much they are willing to pay for a lead and this basic simple calculation gives them an idea of how much they are going to invest.

Also,

CPC = ( Adrank of the person below you / Quality Score ) + $0.01

2. CPM: Cost- Per Thousand Impressions

Formula: (Total Spend / Total Number Of Impressions) x 1000

CPM stands for ‘cost-per mille’ but is mostly commonly known as ‘cost-per-thousand impressions’. This metric makes us understand how it costs to get our advertise in front of the eyes of people.

CPM is useful to people operating both CPC and CPM campaigns. It gives a good insight into how many people are actually laying eyes on your advert.

3. CTR: Click-through Rate

Formula: Total Clicks / Total Number of Impressions

‘Click-through rate’ allows us to understand how many people are clicking on an advert also how many times it is being shown.

Click-Through Rate gives a useful insight about how well an advert is resonating with your target audience. Google depends heavily on this metric when interpreting Adrank (a metric used to assess the overall quality of an advert).

4. CPA: Cost Per Acquisition or Cost Per Conversion

Formula: Total Spend / Total Conversion

It examines the relationship between total advertising spend and the number of conversions the account achieves. Using CPA it is possible to set a figure on how much you are willing to spend on each sale, lead or action.

‘Cost Per Acquisition’, also known as ‘Cost Per Conversion’, is incredibly effective in evaluating the success of your bidding strategy.

5. CR: Conversion Rate

Formula: (Total Conversion / Total Ad Clicks) X 100

Conversion rate helps us understand how often an ad click results in a desired action.

In Adwords this is achieved by placing a piece of dynamic code on the relevant landing page. Adwords is then able to track how many times a click results in a conversion using the formula above.

6. ROI: Return On Investment

Formula: (Revenue – Cost) / Investment Cost X 100 (for %)

ROI tells how much benefit a business is getting from a specific ad campaign. It looks at the fundamental building blocks of a basic sale, taking into account total revenue and incurred costs. It is a percentile figure representing how well a campaign is performing.

7: Ad Rank

Ad rank = CPC Bid * Quality Score

A value that’s used to determine your ad position (where ads are shown on a page) and whether your ads will show at all. Ad Rank is calculated using your bid amount, the components of Quality Score (expected clickthrough rate, ad relevance, and landing page experience), and the expected impact of extensions and other ad formats.

Ad Rank determines your ad position — where your ad shows on the page in relation to other ads — and whether your ads are eligible to show at all.

8) eCPM:

The feective cost per 1000 impressions to determine what the actual CPM came out to be

eCPM = (Total Earnings / Total Impressions ) * 1000

9) Quality Score :

The feective cost per 1000 impressions to determine what the actual CPM came out to be

Qualty Score = (CTR, Adtext relevancy, Keyword relevancy, Landing Page ) + User experience

10) rCPM

The revenue general per 1000 impressions

rCPM = (Revenue / Total Impressions ) * 1000

Want to earn more through Google Ads?  Build your business website or mobile apps with us in minimum investments. Please keep visiting regularly for next part of Google AdWords blog. If you have any queries, questions or suggestions, please post it in the comments section below.

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