Recently, Google’s approached many agencies with their new profitability model in AdWords. Their goal is to take a look at actual success of AdWords at a higher level, but also a more in-depth look at a businesses profits through their advertising campaigns. Many businesses are just learning about what this all means. Will it be successful? This is something only time will tell.
Let’s dive into it a little further to understand….
Essentially, what it means for businesses is that we’re not just looking at clicks, impressions, even CPA anymore. Although, those metrics are still very useful, Google’s offering an even deeper dive into metrics that matter. Profits. Having a low CPA is great, but what if you’re so focused on CPA that you’re business isn’t generating enough profits to sustain your advertising. That could be a big problem. This is where profitability modeling steps in.
With this new tool, Google’s allowing advertisers to enter very specific metrics into a customizable formula in AdWords. This allows you to look at profitability on a campaign level. Having this new metric in AdWords allows us to get the knowledge we need to optimize between volume and efficiency and be able to maximize the opportunity. In that formula, Google allows advertisers to enter their Cost of Goods Sold (COGS), Revenue and Gross Margin % to get their Gross Profit. Here the definition:
Once these metrics are input into AdWords, we can then add a column at the campaign level to monitor and optimize for profitability. If the campaigns are profitable there’s a few steps you can take:
If your campaigns are not profitable, here’s something that you can do:
It all seems pretty straightforward. We’d love to hear your comments on profitability and if you’ve implemented the model yourself. Leave us your thoughts.