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Profits Or ROI - Which Should You Pursue

Aug 1, 2008
When you are designing your AdWords campaigns, you need to give some thought to the difference between profits and ROI (Return On Investment). I'm sure we can agree that the ultimate goal of your AdWords campaigns is to make money. For that you need profits. So the answer to the question of which you should pursue seems simple. But the situation is not as simple as it appears.

In general, when you are starting a new ad campaign, your first goal should be a high ROI, rather than maximum profits. You're in a testing phase at the beginning, unsure how well your ads and your keywords will perform. What you really need to do right now is identify the ads and keywords that perform the best, while not losing money.

You'll be spending some time split-testing ads and eliminating keywords that don't perform. If you try for maximum profits during this time, you'll be spending a lot of money, much of it on ads and keywords that aren't profitable. By trying to make big profits, you'll likely end up losing money.

Once you have a refined campaign, with the most effective ads and only the keywords that actually generate sales, you'll be ready to shoot for maximum profits. And strange as it may sound, when you go for maximum profits, your ROI will almost surely decrease, even as the amount of money in your pocket increases.

The explanation for this surprising result comes from the way you maximize ROI in an AdWords campaign. All other things being equal, the lower an ad's position in the search results, the higher its ROI. That's because the cost of a click in the topmost ad positions for an AdWords search typically costs far more than a click for a lower position.

In addition, most of the time, someone who clicks on a lower-ranked ad is a more motivated buyer than someone who just clicks the first ad on the page. People click ads for a variety of reasons, some of which have nothing to do with an actual desire to buy the product. Few of these "curiosity clickers" bother to click the ads further down the list. They almost always click one of the top 2 or 3 ads. So when a person clicks a lower-ranked ad, they're more likely to buy. The two factors combine to create a higher ROI.

There's only one problem with all this. Far fewer people click on the lower-positioned ads than the higher-positioned ones. So, while the ROI for lower-ranked ads tends to be high, the total number of dollars they generate tends to be low. In AdWords, ROI and Profits tend to move in opposite directions.

High ranked ads generate a lot more clicks, amplifying both the positive aspects of your campaign and the negative ones. If you shoot for top positions (and potentially maximum profits) with a campaign that isn't ready yet, you can lose a boatload of money fast. However, if you stick to the lower positions and concentrate on maximizing the ROI of your campaign, when you do start bidding higher in an effort to increase profits, you'll be well on your way to making lots of money instead of losing it.

So there's the long-winded answer to the question: Pursue ROI until your campaign is refined and performing at its best, then shoot for maximum profits.
About the Author
Knowing when to pursue profits and when to pursue ROI is only one of the ways you can improve your AdWords success. For more on a aggressive new guide rich in proven AdWords techniques, read my Google Massacre Review.
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