Calculating Breakeven Click Value- What’s the ROI?

Calculating Breakeven Click Value
So, here’s how to calculate breakeven click value. Let’s use some sample data:
■ Click conversion rate: out of every 200 people clicking a PPC ad and arriving at your
site, one will buy.
■ Average profit per sale, before advertising costs: every sale brings $150 in gross profit.
The calculation is very simple. Divide the average profit by 200 (in order to make one sale,
you must get 200 clicks): $150/200 = 75 cents.
What does this mean? If you spend 75 cents for every click—that is, 75 cents each time you
use a PPC ad to bring a visitor to your site—and you sell to one person in 200, you’ll break even.
You won’t make money on the sales, but you won’t lose money on the products sold, either.

What’s the ROI?
What’s the ROI on an advertising campaign in which you pay the maximum click value? Nothing.
You have no return. The profit you make on the sales goes to paying the investment in the advertising.
Here’s how to calculate ROI:
Gross profit derived from the advertising divided by the sum spent on advertising
In the previous example, the advertising cost was $150 (200 clicks at 75 cents), and the
profit, after subtracting the cost of the advertising, was $150.
$150/$150 = $0
Consider another scenario. This time you spend 40 cents per click; you still need 200 people
to come to the site for each sale (so you spend $80 on clicks), and the gross profit, before click
costs, is $150.
$150 − $80 = $70
$70/$80 = $0.875
In other words, for every dollar you spend, your ROI is $0.875.