Question

You are responsible for managing a performance-based advertising campaign for your company that provides Indian cuisine cooking classes that cost $100 per student. You have a budget of $300 per day. The search terms you decide to bid on are cooking classes and Indian cooking classes. You initially allocate $200 per day to the first campaign and $100 to the second. Over time you realise that “cooking classes” generates on average 500 clicks per day resulting in sales of $5000. “Indian cooking classes” generates on average 100 clicks resulting in sales of $3000. Which campaign would appear to be the most effective? Calculate the CPC and ROI for each campaign to justify your response. Feel free to use your computer or a calculator to help you work out the answers.

Answer 1

Calculation for campaign “cooking classes”

ROI

ROI=[(Current Value of Investment−Cost of Investment​​)/Cost of Investment]*100

"Current Value of Investment” refers to the proceeds obtained from the sale of the investment of interest.

=[5000-200/200]*100

=[4800/200]*100

=2400%

CPC(cost per click)

CPC is calculated by dividing the total cost of your clicks by the total number of clicks

=200/500

=0.4

Calculation for campaign "Indian cooking classes”

ROI

[(3000-100)/100]*100

2900%

CPC =100/100

=1

The ROI is higher in second campaign. CPC is lower in the first campaign.

So, the most effective campaign would be one with more ROI. The second campaign is giving revenue of 3000 from cost of 100. On the other hand first campaign is giving revenue of 5000 from cost of 200(or 2500 from cost of 100){divide by 2 just to compare.}

Only a tiny percentage of the people who ever click on those will convert. So, instead of CPC revenue should be prioritised.