Calculate the Return on Investment (ROI) for PPC Campaigns

We’ve been asked by a few clients recently for a formula for calculating ROI for their pay per click marketing campaigns. 
I’ve always found that ROI is one of those terms that has been over-used and abused by so many people and as such, there is confusion on how best to calculate it.  Personally, I like to use the following formula when we are discussing the ROI for any PPC campaign:

    ROI = [Contribution] / [Cost]

So to calculate Contribution for a PPC campaign:

    ([Your average profit per sale] x [Estimated number of Conversions]) – [PPC Spend]

To demonstrate more fully, let’s take the following example:

   Monthly PPC Spend:                    £1,500
   Average Profit per Sale:                 £50
   Number of Conversions (Sales) per Month:  75

and so the Contribution to Margin of the PPC campaign is:

   (£50 x 75) – £1500 = £2,250

and your ROI would be:

   £2,250 / £1500 = 150%

Phew!  But there is an easier way.   We have just created an ROI estimator / calculator spreadsheet that you can now download for free.  We hope that it will be a useful tool for you when reviewing your PPC campaigns.