Is a 200% ROI Realistic for All PPC Advertising Campaigns?

If I have read it once, I have read it a thousand times: pay-per-click (PPC) generates an average return-on-investment (ROI) of 200%. But is it true? Is a 200% ROI realistic for every PPC ad campaign? And if it is, why isn’t every company on the planet investing in PPC?

The first thing to know is that 200% is not realistic for every campaign. There are several reasons, which I will get into in this post. But there is one more thing to note: nearly all of the organizations touting the 200% ROI are either ad networks or agencies offering PPC services.

If you are in the business of providing services or selling ads, you are going to hype them as much as possible. So if just one or two clients manage to achieve a 200% ROI, that’s the number you’re going with. It doesn’t mean every client you work with is going to see that kind of success. In fact, most will not.

ROI vs. ROAS

Claims about a 200% ROI on PPC services need to be taken with a grain of salt, especially because so many agencies talk about ROI when they are really referencing ROAS. What’s the difference?

According to Webtek Digital Marketing out of Salt Lake City, Utah, ROI is a measurement of profit. If you spend $100 to generate $200, your profit is $100. You have doubled your money. Therefore, your ROI is 100%.

On the other hand, ROAS (return on ad spend) is a measurement of how much revenue is generated compared to the amount spent. The same $200 in revenue generated by $100 in ad spend represents a 200% ROAS.

The distinction is important inasmuch as promoting ROI when you’re really talking about ROAS ends up inflating profits. You’re telling clients they will earn more in profit then they actually will. It is no different than conflating gross revenues with profit. The two are not the same thing.

Why 200% Is Not Realistic

I would be hesitant to tell a client to expect a 200% ROI on PPC services. I would not want the clients expectations to exceed my ability to deliver. What my client does not know is that there are a lot of different factors in play when it comes to PPC. They include:

• Industry Competition – Even if average ROI were closer to 100%, industry competition has an enormous impact. It’s rare to see such a high ROI in highly competitive industries. Take legal services. Their highly competitive nature means that the cost-per-click is also quite high. High CPC reduces profit.

• Industry Margins – Some industries have higher margins than others. Retail has an exceptionally high margin compared to food service. Expecting a restaurant to achieve a 200% ROI on PPC just isn’t realistic. The margins are not there.

• Market Saturation – ROI can also be impacted by market saturation. The more saturated a market, the more difficult it is for an advertiser to stand out. Expecting a lower ROI would be reasonable.

Topping it all off is something known as PPC ad fraud. It is real and it costs advertisers billions of dollars annually. Thanks to fraud, it’s possible to spend a ton of money on PPC ads that get lots of clicks but don’t convert. That is a fast track to tanking your ROI.

I get the fact that agencies offering PPC services want to make them sound as attractive as possible. But the truth is that 200% is not a realistic ROI for most ad campaigns. If it were, PPC would be the hottest advertising strategy on the planet.