Calculate Your Perfect Google Ads Goal With This FREE Simple Tool (Easy CPA / ROAS Goal Calculator)

So many times I'll sit down with someone to talk about their Google Ads account and I'll say, okay, what's your goal? And they'll sit there and they'll look at me with a blank face and they'll just be silent and I'll be thinking, oh boy, here we go. We need to figure out what the goal is in this account. Hey, this is Luke from Grow My Ads. And today I want to talk about an extremely important topic that people normally skip straight over when it comes to setting up their campaigns. They just go chop charging in, switching on ads, starting to spend money. But what they often fail to think about and to even sit down and calculate is what is the goal of this campaign? What is the goal that I'm trying to achieve when I'm running my Google Ads campaigns, sending traffic to my site, spending money every single day, sometimes thousands and thousands of dollars a month. What am I actually trying to achieve? Now, I don't just mean something as simple and clear cut as, you know, drive sales or generate leads for my business. I mean specifically, what are we trying to do with this Google Ads campaign? What numbers are we trying to hit? And this normally takes two different forms for lead generation. We're normally talking about a cost per lead. So we're trying to calculate, okay, based on my, my margins, based on how much my service is, how much is it worth me spending to get a lead. And for E Commerce we're thinking about a return on ad spend. If I have, you know, a certain amount of margin and my, my orders are worth a certain amount and my product is certain value, what sort of return do I need to actually be profitable to actually make money from my campaigns? Now, if you don't know your goal, if you don't know what it's worth spending to achieve the result that leads to a customer or a purchase, then you're really going to struggle to be profitable with Google Ads because you're not really going to have a definition of what profitability actually is. You're simply going to be spending money on traffic kind of blindly and you're not really going to be able to step back and analyze progress with your account and determining if you're moving towards a particular objective. So in today's video, really what I want to talk about is how to calculate your goal inside of Google Ads, how to calculate a specific goal for your business so that you know whether or not you're profitable from your campaigns and you can start to push your account further in order to drive more Volume while knowing that you're actually making money for every single dollar that you're spending in your account. So let's get into it. So before I share with you a tool I put together that's going to help you calculate your own profitability goal, I want to share with you an important concept that you have to be aware of when you're working out what your goal needs to be. So that is basically the inverse relationship between profitability and volume. Typically an account, assuming you haven't got super low hanging fruit problems that you can quickly solve that are going to unlock a huge amount of extra performance, you're going to see profitability start to drop as you try to push more volume. And the reason for this is simple. There are only so many sources of traffic inside of Google Ads, only so many searches, only so many keywords and search queries, campaign types and individual sources of traffic that are actually going to drive profitable conversions for you, that actually going to drive you the type of people that you want that are going to convert for whatever your offer is. And as you start to push more aggressively with your campaigns and you try to spend more, Google is still going to have to really focus on those sources of traffic that actually deliver customers or signups and leads to you. In order to get more from those sources, Google has to bid higher each time, or rather, you have to steer Google to bid higher on your campaigns. So that means that your cost per click is actually going up as you're trying to get more clicks from those particular source of traffic. So to kind of illustrate that, because it is a little bit of a hard concept to really get your head around, I put together this little table here that's going to give you some idea of what this looks like in practice. So this, strangely enough, this did take a bit of time to kind of model because there are a few pieces here that are moving. But let's just say you have a $5,000 budget, and I'm looking at this at various levels of cost per click. We've got a 10% conversion rate across the board. And these are the two interesting columns here. So this is the clicks that we can get at that particular cost per click, and these are the clicks that we could actually buy with our budget. So what does that mean? The clicks that we want is how many times we can, we can buy a click at this cost per click. So if we have a $5,000 budget, we could in theory buy 5,000 clicks with that budget, but in practice, because the most of the traffic is more expensive than $1. In reality, there are actually no clicks available at that price. So in the end, we end up with zero conversions. Even though, in theory, if we had our 10% conversion rate, we get $10 cost per conversion, we actually don't get any conversions because there are no clicks available for that particular keyword or search term inside of Google. So what you're going to see here is that as we start to increase the cost per click that they're willing to pay, we're going to see more clicks be available to us at that price because we're pushing more aggressively into the bidding and into the auctions within Google search results. So we're getting more of what's at the bottom of that, of that layer of clicks. As we're bidding higher, we bite off more. We bite off more and more. But even though we're getting more conversions as we go up, our cost per conversion is increasing significantly. So if our budget was fixed and our budget, let's say, was fixed at 5,000, there is going to be an inflection point where as we, if we try to get more aggressive, we'll actually end up getting fewer conversions because the cost per conversion gets so high, it actually starts to restrict the number of conversions we get with our budget. But let's say we wanted to buy all of the conversions that were available at a $20 cost per click. Well, instead of spending 5,000, we would actually have to spend, as you can see here, 10,000 just to get those incremental additional conversions. Now, if you didn't have a cost per conversion goal and you were just like, well, I just want as many conversions as possible, this could well put you into being unprofitable with your campaign. Right. Let's just say profitability here was $150 a conversion. Yeah, there are conversions out there that, that, that are over and above what you can get at 150, but because they're costing so much, we're actually losing money on those conversions and all of our conversions because it's pushing our cost per conversion above our profitability threshold. And that's really what I want you to focus on. When you're cal, your goal is you need to work out exactly what it's worth paying to get a contact or to get a conversion or a lead or a sale and make money. Because you can't sustain a campaign just by continuously throwing money at it unless you literally have millions of dollars in funding, which does happen. And even then, there's going to be a finite limit to it. But in general, if you're a business, you're running your own ads or you have an agency running ads for you, you need to make sure that you are actually making money on your ad spend and that the ad campaigns are self sustaining and then you can actually start to grow the volume in your account and drive additional revenue, sales, leads, etc. So that's why I'm now going to jump over to the goal calculator that I put together. I'm going to walk you through it and I'm going to show you how you can calculate your goals very quickly so you can set specific targets in your account in order to know exactly how profitable you are. So you can get a link to this goal calculator in the description below. But let me explain how it works and how it relates to the situation in your business. Right now I've got two calculators here, I've got an E Commerce PPC goal calculator and I've got a lead generation generation PPC goal calculator. Let's start with the E Commerce one. So first thing first, we want to enter in our average order value. So let's just say our average order value is 300 and I'm going to make sure that that is set up as a dollar figure. And the next thing is we want to calculate our gross profit, or rather we want to enter our gross profit. So our gross profit obviously is whatever our cost of goods is and we're taking that out of the total average order value. And let's just say to deliver and sell a $300 item costs us 150. Right? So we have a 50% margin. So in this case here, the calculator is actually going to give us a few other numbers. So it's going to tell us obviously our gross margin is 50%. It's going to tell us what our break even return on ad spend is. So that's the threshold at which if we go below it, we actually start losing money. If we're hitting that number, we're not losing money, but we're also not really making anything. Google is essentially eating up all of the margin that we have available from selling anything. So in this here, a 2x return on ad spend would be break even. Now I've given you two goals here and these would be the return on ad spend goals that we would be aiming to hit inside of your campaigns, your search, shopping, performance, max, etc. We've got a growth return on ad spend goal which is Basically, a lower return on ad spend goal, and we have a profitability return on ad spend goal. So what's the difference between the two? At a growth return on ad spend goal, there's going to be more volume that is available to you in order to grow your account. So you're going to be able to be more aggressive and hit this goal. Remember, we were looking at volume versus profit, and as you start to bid more aggressively, there's more volume, but your cost per conversion or the cost to acquire that customer is going to be higher. Well, in this case here, if we are okay with a lower return on ad spend, it's profitable still, but it's not super profitable. It's just acceptable level of profitability. We're going to be able to buy more traffic in our campaigns, we're going to be able to bid more aggressively, we're going to be able to open up the scope of our campaigns to go after more terms, more clicks, and ultimately we're going to be able to drive significantly more revenue at that lower return on ad spend. Now, what is the benefit of this? Well, the benefit of this is that when you're more aggressive with your campaigns, if you just do it for a short, short period of time, you collect a whole bunch of conversion data that trains your campaigns so that at a later date, if you would decide you want to aim for a higher level of profitability, your bidding algorithm has much more conversion data with which to hit that profitability goal. So if you decide later, hey, I actually want to tighten up and I want to hit a higher level of profitability. Well, if you've been running your account at a 3x return on ad spend, you're gonna have a whole bunch of stuff you can chop away at, and you're gonna have a whole bunch of conversion data that's gonna make it much, much easier to hit this higher return on ad spend goal. Right. So that's a big reason why sometimes we would encourage a business to just work with something that's acceptable. Right now. It's going to give us a whole bunch of scope to collect data, and then later we can always start to tighten up and improve profitability for you. Now, profitability Roas goal, what is the purpose of this? Well, let's just say that you have decided that you've, you're just not hitting the profitability level. You want, you want to be much more comfortable with how much you make per order. Well, that basically means that we want to be pushing for a higher return on ad spend. So in this case here, the suggestion is at least double or at least a plus two to our break even return on ad spend. So a 4x return on ad spend here would be more profitable and would allow us to make more margin per order. So you can see the difference, by the way, in the cost per conversion for each of these. It's not a huge difference, but return on ad spend wise it does make a difference because at this higher cost per conversion that we would accept at 3x is going to be more scope for conversions. But if we really wanted to be profitable, we would have to chop away a little bit to hit that higher level of profitability and accept a smaller amount of volume, a slight reduction in amount of volume in order to make more money per sale. So now I'm going to scroll over to the lead generation goal calculators because this is slightly different. Right. We've got a bit of a different sales process here. A typical sales process for lead generation that we run into is you're running ads to drive leads. Leads go to booking an appointment with you and then eventually those appointments turn into customers or clients. That's a typical cycle. So in this case here we need to enter a few different numbers. So first of all, I'm going to enter an average customer value. Let's just say it's 5,000. And let's just say on a $5,000 customer, we're making 2,000. We're making $2,000. Okay, I'm just going to add a dollar figure here. What does that explain it to us? Well, we've got a 40% margin. Great. But we still have to enter in a few more numbers to calculate our cost per conversion goal. So we need to enter the appointment to sale conversion rate. So the question I would normally ask is, okay, out of the last 10 appointments you had with legit good quality leads, how many of those actually became customers or clients? Let's just say in this case we converted 30% of them. So let's just do 33%. Or we converted a third of them. Okay, fine. And I'm going to make that a percent. Let's just do it here actually. Okay, so 33%. So that means that our value per appointment, and again that's break even value of course is going to be $660. So if we're spending $660 to get an appointment, we are probably breaking even. We're not making much money at that point. Next thing we need to calculate is what proportion of leads that come from ads actually turn into appointments. And this is important obviously because we've got a multi step sales process taking place here. So in this case here I'm going to enter. Let's just say we have, you know, let's just say we have 25% of these. So 20, so one in four leads actually book an appointment with us, let's say over a one or two month time frame. And then of those that book an appointment we have 33% or a third of those actually end up closing and becoming a customer worth $5,000. Right. So in this case here, the break even value of a lead in the account and a lead could be a phone call, it could be filling out a form, it could be downloading some kind of guide or however you're defining the lead, the break even value of that lead is $165. And I'm normally setting the cost per conversion goal at half the breakeven value. So that we're putting $1 into our campaign and we're getting $2 out. Right. So you could be more flexible than that, you could be more aggressive. You could set this to, you know, let's just say 75% of the break even value and that way you still have some margin, but you can be more aggressive. But typically for lead generation we want to be making at least a 2 to 1 return on our money in the campaigns and that's definitely possible. In lead generation you have a bit more scope in order to improve conversion rates, that kind of thing, in order to hit those numbers. And so here I'm setting the CPA goal at $83. So that would be the cost per conversion goal that I would set in my campaigns and then I'd be working the whole account around hitting. Now when you have a goal like this, you can then measure how far away you are from profitability in your account. So let's say my goal for profitability is $83 or let's just round it to $80 and the account is delivering conversions at $150. Well, we know we're pretty close to break even in that account. We're probably not really making money. So maybe we can survive with that for now, but in the long term it' probably not going to be sustainable and it's really not going to be that scalable because there's not going to be additional funds to put back into the account in order to grow it. Let's just say that our cost per conversion that we're hitting in the account right now is $40. Well what that means is we can actually get much more aggressive and still be profitable and still be hitting our 2 to 1 return with our $80 cost per conversion goal. So these are some of the ways you can start to think about your campaigns and these are some of the ways you can start to analyze how profitable your campaigns are running right now and where you want to take that performance going forwards. If you just start running campaigns and you're just spending money on ads, you don't have any goal that you're moving towards and you don't really know how that spend is driving results in your business. So it's super important to link what's going to the account and the costs and the conversions that are happening there with the end result that you're getting, which ultimately is some kind of purchase, either E commerce or a customer that's buying from you directly from a lead. Hopefully this video was useful. I encourage you to calculate your cost per conversion goal. Whether you're an E commerce business or you're trying to drive leads, make sure you know exactly what a break even cost per lead looks like. You decide how profitable you want to be with your leads from Google Ads and you set a specific and clear goal in your account that you're working everything in the account towards hitting. And then once you hit it, then it's about increasing the volume at that level of performance and continuing to expand while remaining profitable because that's really what the game is all about. So I hope you enjoyed this video and I'm looking forward to seeing you in the next one. Speak soon.