Google adwords, SEO PPCWhen calculating the ROI of your pay per click advertising efforts, most people use the net profit of the one sale they made when a new customer clicks on an ad in purchases something from their website.1 But that may not be the correct way of calculating the ROI from a new customer.

Look to the Future

What a vendor needs to consider is the lifetime value of that customer. Maybe they invested $100 in Google advertising to make a net profit of $400 off of that one sale from that new customer. but if they give that customer a good value and good service and the product or service is something that may be needed again in the future, it is very likely that that customer will become a repeat customer. This means that that $100 Google advertising investment made not just the 1st sale from that customer, but all of the sales from the lifetime relationship with that customer.

So in that lifetime relationship, if the customer buys 2 more times the vendor made a $1400 net profit from that $100 Google advertising investment. more accurately than a 400% ROI from a one-time sale the vendor made a 1400% ROI off of the lifetime value of that customer. While it is okay to use the conservative calculation of a one-time sale when calculating the ROI of pay per click advertising, after all, that is pretty much the only quantifiable and qualifiable from a real-time sale, the vendor can consider the Future Value of a customer when deciding on the appropriate amount to bid on a keyword. This future value2 of a customer, theoretically, makes pay per click advertising much more attractive.

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  1. When I say “purchase from their website”, that also entails when the site induces them to make a phone call or come in in person. []
  2. in accounting terms, future value is referred to as NPV or Net Present Value []