PPC ROI: A Simple Formula to Calculate Lead Value

Calculating a more accurate look at the revenue per lead for your search engine marketing (SEM) programs

Here, you’ll find:

• How to determine the true value of your leads
• The benefits of aligning sales and marketing strategies
• The best results-driven reports to develop
• Why a lead-scoring system is key

Put on your blue-light-blocking glasses, crack those knuckles, and fire up your calculator. It’s time to do some math.

Being able to calculate your pay-per-click strategy’s return on investment (or PPC ROI) is an important part of running any paid search marketing program. And knowing the true value of the leads you’re currently bringing in can help you make more informed strategy decisions. More than that, it can help you optimize your PPC efforts. As a result, you can generate more leads in the future — and who doesn’t want that? 

Calculating revenue per lead, however, isn’t always as simple as dividing the cost per lead by the revenue earned per lead.

To find the true revenue per lead, you need to set up a system that connects high-quality leads to the dollar amount spent on each individual lead. Luckily, you don’t have to rely only on intuition and estimations. 

By connecting your marketing and sales strategies in a meaningful way, you can better leverage the power of the data you have.

Where to begin

At face value, the formula for calculating revenue per lead is fairly simple:

Total revenue generated ÷ Total number of leads = Average revenue per lead

However, finding the average returns isn’t necessarily a long-term recipe for success. You need to be able to factor in PPC site traffic and customer relationship management (CRM) data as well. This will allow you to see which leads in the CRM are high-valued opportunities or closed sales.

You also want to decide how to measure quality leads. Ideally, you want to attract those who move through the funnel quickly and/or convert for the highest customer lifetime value (LTV).

Alternatively, some experts recommend this formula for calculating return on ad spend (ROAS):

Total revenue generated by ads ÷ cost of ad spend = ROAS

It’s worth noting that calculating PPC ROI in this way isn’t a one-size-fits-all method. For example, if you sell high-end software or services, your sales cycle may be anywhere from six months to two years. This means that just getting a handful of sign-ups or registrations per month can be sufficient. The potential revenue from those leads would cover the entire SEM program cost.

But you don’t want to necessarily go all-in on whatever strategy brought those leads in just yet. That’s because the data set is too small to be able to measure confidently.

Get all of your variables in place

For a more accurate look at lead value, it’s a good idea to develop a lead scoring system with robust CRM and keyword tracking technology. You can do this either in-house or with a PPC agency. This way, it’ll be easier to connect specific paid search site visitors with sales and lead value.

You can track “big data” as well as input subjective data about personal experiences with the lead for added context. By tracking which customers stood out as exceptionally good leads throughout the sales cycle, you can connect each with corresponding PPC site traffic data and see what patterns emerge.

If a specific keyword or ad group drove the highest value sales, it might be worth allocating more of your budget there. Alternatively, if your highest LTV is coming from desktop PPC leads, shift more budget to desktop over mobile campaigns.

Build your reports

The next step is to develop PPC ROI reports that focus on what you care about: real results. If you don’t already, it’s a good idea to start tracking data year-over-year as well as monthly. Instead of only relying on statistics or intuition, this lets you combine the science and the art of effective digital marketing to drive more ROI.

Oftentimes, marketers don’t properly connect revenue earned to cost per lead. Looking at the average ROI for any given PPC campaign is not the best way to derive meaningful insights.

For PPC ROI, seasoned experts know it’s best to use a results-driven approach and work backward instead of using a “guess-and-check” approach.

Get solutions to common PPC problems with Our Ultimate Guide to Problem-Solving for Your PPC Program and Getting the ROI You Deserve.

Calculate anticipated ROI before anticipated site traffic

Judging your generic site traffic from PPC campaigns can have some pitfalls. To improve your bidding strategy, you want to work backward here as well by scoring leads and using “money keywords” for results-oriented PPC campaigns.

When you take measures to get highly qualified leads from the first click, you connect marketing strategy with sales strategy in a way that is more cohesive and aligned.

Get the final results and know your cost per lead

Putting a system in place that allows you to connect leads and actual sales values with your PPC strategy helps you properly calculate the cost per lead. Return to the simple equation of:

Total revenue generated ÷ Total number of leads = Average revenue per lead

The takeaway

By taking a scientific approach to calculating revenue (with an appropriate amount of anecdotal evidence based on recent experiences with clients), you can feel confident that you have a handle on your true lead value.

Need more PPC guidance? That’s what we’re here for.

This post was originally published in August 2014 and was updated in November 2020.