Google uses a lot of formulas to calculate everything in regard to ads, impressions, conversions, etc. As a digital marketer, you need to know all the common Google Ads Formula so that you can make a better decision when you start to advertise on google ad network.
Below are the most common google ads formulas:
1. Click Through Rate (CTR)
The Click Through Rate (CTR) is a percentage ratio showing how often people who see your ad click them. Click Through Rate (CTR) can also be used to analyze how well your keywords and ads are performing.
The Click Through Rate is calculated with the following formula:
CTR (Click Through Rate) = Clicks/Impressions * 100
For example, if you had 5 clicks and 100 impressions, then your CTR would be 5%.
A high CTR is a good indication that users find your ads helpful and relevant.
CTR is also used to gauge which ads and keywords are performing and which need to be improved. More your keywords and ads relate to each other and to your business and targeted to a specific audience, the more likely a user is to click on your ad after searching on your keyword phrase. And more likely to buy from you or complete your Advertisement goal.
Keeping this Google Ads formula will help you create better and compelling ads.
2. CPM = Cost/1000 impressions
Simply putting, CPM (Cost Per Thousand Impressions) is a way to bid for an advertisement where you pay per one thousand views /impressions on the advertiser’s Display Network.
CPM is calculated by the following formula:
CPM = Cost/1000 impressions
For example, if you spend $100 for 1000 ad impressions your CPM is $100
Keeping this Google Ads formula would help you save your advertising money and you will use that very wisely.
3. vCPM
vCPM is Viewable Cost Per Thousand Impressions. This bidding method ensures that you only pay when your ads is seen. Though the vCPM is costlier than the CPM bids, since viewable impressions are potentially more valuable marketers should look into vCPM.
vCPM is calculated using this formula:
Total Spend / ((Total impressions * % in-view) / 1000) = vCPM
For example, if your advertiser charges you $10 for CPM, then he might charge you $25 or higher for vCPM.
4. Cost Per Acquisition (CPA)
Cost Per Acquisition (CPA) is the cost you pay to your advertiser to acquire a customer or to achieve a goal you have set for your campaign. This goal could be anything like, sign up, fill a form, request a quote, request a demo, make a call, make an inquiry, download a brochure, or anything you want your visitors to do on your website.
CPA is calculated by the following formula:
CPA= Total Cost / Total No. of Goal Completion
For example, if you have spent $1000 on your ad campaign and you have 100 sign-ups from that campaign then your CPA would be $1000 (Cost) / 100 (Sign-ups) = $10
5. Conversion Rate / Conversion Ratio
Conversion rate is the percentage of visitors to your website who complete a desired action or complete your desired goal on your website out of the total visitors on your website you have attracted from your advertisement.
Formula to calculate the Conversion Rate is:
Conversion Rate = Conversion/Clicks
For example, if your campaign generated 1000 clicks and out of that 100 visitors completed your desired goals on your website, then the conversion rate is 10%.
6. Total Cost
The Total cost is the amount of money you spend on your advertisement.
Total cost is calculated by the following formula:
Total Cost = Click * CPC
For example, if your campaign generates 1000 clicks and the Cost Per Click was $2, then your total cost would be $2000
7. Ad Rank
AdRank in Google Ads is a key AdWords marketing concept that plays a huge role in determining how prominently your ads are displayed in a SERP and also your cost-per-click.
AdRank determines the order in which competing ads should be ranked on a SERP, which has a huge impact on the visibility of your ads to potential customers.
Now the Ad Rank is calculated by the following formula:
Ad Rank = CPC * (Quality Score + Ad-Extension)
An Ad extension is included in the Ad Rank because clear and good Ad extensions make the ads look more attractive on the search engine result pages and have a higher chance of getting clicks.
Adding ad extensions will raise your Click-Through-Rate and Quality Score, which obviously reduces your CPC.
However, remember that the formula for the actual CPC you pay is based on the AdRank of your competitors, so if your competitor leverages ad extensions and gets a higher ad rank as a result, then your CPC will go up and your ad position will go down.
8. Quality Score
Quality Score is an estimate of the quality of your ads, keywords, and landing pages. Higher quality ads can lead to lower prices and better ad positions.
You can see your Quality Score in your keywords’ “Status” column. The more relevant your ads and landing pages are to the user, the more likely it is that you’ll see higher Quality Scores.
Formula to calculate Quality Score is:
Quality Score = Relevance of Landing page, Ads and CTR
9. ROAS (Return on Ad Spend)
Return On Advertising Spend, (ROAS), is a marketing metric that measures the efficacy of a digital advertising campaign. The ROAS helps online businesses evaluate which methods are working and how they can improve their future advertising efforts.
ROAS is calculated by below formula:
ROAS = Gross Revenue from Ad Campaign / Cost of Ad Campaign
For example, a company spends $2,000 on an online advertising campaign in a single month. In this month, the campaign results in revenue of $10,000. Therefore, the ROAS is a ratio of 5 to 1 (or 500 percent) as $10,000 divided by $2,000 = $5.
10. ROI (Return on Investment)
ROI is the ratio of your net profit to your costs. It’s typically the most important measurement for an advertiser because it’s based on your specific advertising goals and shows the real effect your advertising efforts have on your business. The exact method you use to calculate ROI depends upon the goals of your campaign.
One way to define ROI is:
ROI = (Conversion – Product Cost)/Cost of Ad Spend
Let’s say you sold $10000 worth of products by advertising and you spent $1000 on advertisements. The products you sold for $10,000 cost you $7000 to produce. have a product that costs $100 to produce, and sells for $200.
You sell 6 of these products as a result of advertising them on Google Ads, so your total cost is $600 and your total sales are $1200. Let’s say your Google Ads costs are $200, for a total cost of $800. Your ROI is:
($10000 – $7000) / $1000
= $3000 / $1000
= 30%
In this example, you’re earning a 30% return on investment. For every $1 you spend, you get $1.30 back.
The same formula can be applied if you don’t sell a physical product and sell service. Then you have to price your service.
11. Max CPC (Maximum Cost Per Click)
Maximum CPC can be calculated in two different ways:
(1) If you have a fixed value for Maximum CPA (Cost Per Acquisition), multiply the conversion rate by Maximum CPA.
(2) if you have a fixed value for Maximum CPM, divide Maximum CPM by 1000, and then divide the result by CTR.
These are the formulas to calculate Maximum CPC:
Maximum CPC = Maximum CPM / 1000 / CTR
Maximum CPC = Conversion Rate x Maximum CPA
Example of maximum CPC calculation
If maximum CPM is $10 and CTR is 7.5% (0.075), then maximum CPC is calculated like this:
Maximum CPC = $10 / 1000 / 0,075
Maximum CPC = $0.13
If the conversion rate is 5% (0.05) and maximum CPA is $20, then maximum CPC is calculated like this:
Maximum CPC = 0.05 x $20
Maximum CPC = $1
12. Ad request RPM
Ad request revenue per thousand impressions (RPM) is calculated by dividing your estimated earnings by the number of ad requests you made, then multiplying by 1000.
It is calculated by the following formula:
Ad request RPM = (Estimated earnings / Number of ad requests) * 1000
For example, if you earned an estimated $120 from 15,000 Ad requests, your ad request RPM would equal ($120 / 15,000) * 1000, or $8.00.
This Google Ads formula is important to keep in mind because this helps you calculate what would be your cost for the ads.
13. Ad RPM (Ad Revenue Per Thousand Impressions)
The Ad revenue per thousand impressions (RPM) is calculated by dividing your estimated earnings by the number of ad impressions you received, then multiplying by 1000.
Ad RPM = (Estimated earnings / Ad impressions) * 1000
For example, if you earned an estimated $90 from 45,000 ad impressions, your ad RPM would equal ($90 / 45,000) * 1000, or $2.00.
There are a lot of new features Google has added in their adwords including the new interface, and adwords name changed from Google Adwords to Google Ads but this Google Ads Formula remains the same. And almost all other advertising platforms like Bing, Facebook, LinkedIn, Instagram, Twitter, etc. have similar methods of calculating costs.
Join us on LinkedIn
