PPC Associates Simple

By David Rodnitzky, Founder & CEO, PPC Associates

The Lin-Rodnitzky Ratio:

Way to Measure
AdWords Account Performance

PPC Associates holistic online marketing

David Rodnitzky
www.ppcassociates.com info@ppcassociates.com

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Contents
An Introduction to The Lin-Rodnitzky Ratio The Basic Building Blocks of the Lin-Rodnitzky Ratio What Does It All Mean? Using the Lin-Rodnitzky Ratio to Improve Your Performance 1. 2. 3. Eliminating poorly performing queries Bid adjustment based on cost per conversion Alpha Beta Account Structure implementation 3 4 9 10 10 11 12 12 13 15 15

Parting Words About PPC Associates About the Author Contact Us

Contents

An Introduction toThe Lin-Rodnitzky Ratio

How are we doing? This is the first question marketers ask us about their Google AdWords account. For a long time, we struggled with this question. We would go into lengthy explanations of PPC best practices and discuss conversion rates, account structure, and competitive benchmarking. Often this detailed analysis didnt give the marketers any more comfort; it just created frustration. OK, theyd say, I know I have to improve a lot of things in my account, but does that mean Im absolutely terrible or close to perfection? The truth, of course, is that there is no easy answer to this question (if there was, people wouldnt need SEM experts like us). We have, however, come up with a metric that at the very least is directionally useful. We call it the Lin-Rodnitzky Ratio, named after our company founders, Will Lin and David Rodnitzky. In its simplest sense, the Lin-Rodnitzky Ratio is defined as follows: Divide the overall account cost per conversion by the cost per conversion of all queries with at least one conversion to achieve the Lin-Rodnitzky Ratio. Well now walk you through how to determine your own accounts ratio, and some suggestions for how to improve your ratio going forward.

PPC Associates Simple Way to Measure AdWords Account Performance

The Basic Building Blocks of the Lin-Rodnitzky Ratio

The first thing that you absolutely must have in your account for the Lin-Rodnitzky Ratio to work is conversion tracking. Conversion tracking in AdWords can be achieved in one of two ways: by installing the AdWords Conversion Tracking code, or by setting up goals in Google Analytics and then linking your Google Analytics account to your AdWords account. Rather than trying to explain this ourselves, we recommend that you read Googles helpful guide to conversion tracking here: http://adwords.google.com/support/aw/bin/topic.py?hl=en&topic=16344. Depending on the amount of traffic and conversions your account receives, you generally want to evaluate conversion data with at least two weeks of data, and preferably with a few months of data. The more data you have to analyze, the higher your confidence in the results. Once you have enough data and youve verified that your conversion tracking is properly set up, you can start to collect the data used to calculate the Ratio. The two pieces of data you need are your overall account cost per conversion and your converting queries cost per conversion. To see both of these stats in one place, you need to follow these steps: 1. 2. Make sure you have set a date range for data in your AdWords account of at least two weeks and preferably several months; Go to the Keyword tab in the AdWords interface;

PPC Associates Simple Way to Measure AdWords Account Performance

3.

Scroll down to the See Search Terms tab and select All

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This will take you to a report that shows you data for all of your search queries. Its important to understand the difference between a keyword and a search query. A keyword is a word or phrase that you add to your account. A search query is the actual search term that a user typed into Google that was matched to your keyword. Thus, you might buy the keyword New York Hotels but end up getting matched by Google on search queries like: NYC motel New York vacation Uptown Hilton in NY

To learn more about keywords and queries, and to learn how to organize your AdWords account to eliminate non-converting queries, read our white paper on Alpha Beta campaign structure (available at www.ppcassociates.com). The search query report should look something like this:

PPC Associates Simple Way to Measure AdWords Account Performance

The next step is to set up a filter against this list of search queries. To do this, just follow these steps: 1. 2. 3. Click the filter tab above your search query results. The select create filter. A yellow box should appear. From the drop-down, choose conversions and then choose conversions (1-per-click). Use the >= greater than or equal to option and enter 1 in the box. Press apply.

PPC Associates Simple Way to Measure AdWords Account Performance

You should now see your list of queries reduced to just the queries that have received at least one conversion. If you scroll down to the bottom of the page, youll see the results of your filter, and below thatyoull see the results for the overall account.

PPC Associates Simple Way to Measure AdWords Account Performance

You are now ready to calculate your Lin-Rodnitzky Ratio. In the example above, the cost per acquisition from queries with at least one conversion is $79.90, and the overall cost of all queries is $471.84. Thus, the math looks like this: 471.84/79.90 = 5.91 Thats your Lin-Rodnitzky Ratio.

What Does It All Mean?

Weve reviewed hundreds of AdWords accounts over the last four years using the Lin-Rodnitzky Ratio, and weve concluded that healthy accounts typically have a Lin-Rodnitzky Ratio between 1.5-2.0. On a continuum of scores, this is what each score range generally means: 1.0-1.5: The account is too conservative. Most likely this means that the only queries getting any traffic are brand terms or the absolutely most targeted queries. This means that the account is likely missing out on a lot of incremental conversions, most of which are likely to still be highly profitable for the business. 1.5-2.0: The account is well-managed. There is a combination of consistent winners that always bring in sales and experimental queries that are being tested to identify growth opportunities. 2.0-2.5: The account is too aggressive. There are too many queries getting clicks that are not driving conversions. This is either due to excessive use of broad match, a lack of attention to the account, or a lack of rigorous analysis of metrics. 2.5+: The account is being mismanaged. Money is being wasted daily, and simple changes can save the business a lot of money.

PPC Associates Simple Way to Measure AdWords Account Performance

In the example above, the Lin-Rodnitzky ratio was almost 6 (note: this is not an account we are managing; this was taken from the account of a potential client prior to our management). This account is wasting thousands of dollars on queries that will never make the company a penny of revenue, much less profit.

Using the Lin-Rodnitzky Ratio to Improve Your Performance

The Lin-Rodnitzky Ratio is a great way to assess the performance of your current agency or SEM team, as well as an effective way to set expectations for account improvement. It is also a great way to measure the impact of global changes to your account. In other words, if you measure the Lin-Rodnitzky ratio before and after any test you apply to your AdWords campaign, you can create a benchmark of the relative value of that test; the test that most dramatically pushes your account closer to the 1.5 to 2.0 Ratio is the test that provided the most benefit to your business. In general, weve found that there are a few core techniques that drive significant improvements to the Lin-Rodnitzky Ratio: 1. Eliminating poorly performing queries.

At the root of Lin-Rodnitzky Ratio problems are queries that cost a lot of money but dont drive conversions. An easy way to improve your Ratio is to run the See Search Terms analysis, but instead of filtering against queries with at least one conversion, filter for queries with a lot of spend and no conversions, or filter for queries with conversions but with unacceptable cost per conversion. Heres an example where over $1000 could have been saved simply by eliminating five keywords (the total amount that could have been saved based on the query in this report was $11,000!):

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PPC Associates Simple Way to Measure AdWords Account Performance

2.

Bid adjustment based on cost per conversion.

Some queries could be profitable for your business, if they were bid at the right price. Identifying queries with a lot of conversion volume but unacceptable cost per conversion and then bidding down these queries is an easy way to increase your Ratio. Of equal importance, queries that are getting great conversion volume but are bid too low (and thus missing out on opportunities) will also drive positive Ratio effects. Again, you can create simple filters to identify these bidding opportunities.
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3.

Alpha Beta Account Structure implementation.

The best approach is to implement the Alpha Beta Account Structure. Alpha Beta eliminates bad queries, improves great queries, and helps you identify queries that need additional testing. The overall impact to your Ratio is enormously beneficial.

Parting Words
The Lin-Rodnitzky Ratio is not intended as a cure-all. Rather, it is a simple way to benchmark the health of your AdWords campaigns. It should help you determine whether you have the right people managing your accounts, and to what degree you need to make immediate changes to your strategy or account structure. A successful paid search campaign is based on many factors. As weve noted in our white paper The Seven Habits of Highly Effective Search Engine Marketing (available at www.ppcassociates.com), profitable SEM campaigns are driven by a holistic approach that includes: Search engine selection Keyword creation and optimization Ad text testing Landing page optimization Proper tracking Account structure Precise targeting

Get all of these techniques right, and youre guaranteed to have a great Lin-Rodnitzky Ratioand an ROI-positive account!

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PPC Associates Simple Way to Measure AdWords Account Performance

About PPC Associates

PPC Associates is a growing search engine marketing agency located in the San Francisco Bay Area. Our approach to SEM is what we call holistic search engine marketing. Weve identified seven core elements that go into effective SEM, and we make sure to apply these principles to each of our clients. To be successful at SEM, we consider everything from your Web site usability to the time of day and geographic location of your sales. We begin every engagement by getting a thorough understanding of: your business objectives; your Companys core strengths; and the interaction between your marketing campaigns and your Web site, your sales team, and your customer service department. Search engine marketing is but one part of an overall conversion funnel for your business - without knowledge of the rest of the funnel, we cannot effectively manage your SEM. As a client, you can expect us to constantly ask for greater understanding of your business and to use that information to further improve your SEM campaigns. Finally, weve learned from experience that a marketing department that is considered a companys cost center is the first team to go when times are tough. We take the approach that all SEM should and must be a profit center for your business. This means that we work with every client to understand your business goals - either in terms of revenue, profit, or margin dollars - and then run your SEM campaigns to meet or exceed these goals. PPC Associates was founded in early 2008 and now has more than 50 clients, including ExactTarget, Knewton, Shopify, Beau-Coup, EchoSign, and OneKingsLane.

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Our most recent Net Promoter Score survey (August 2011) resulted in 19 of 22 respondents as net promoters (9 or 10 out of 10) with only one detractor. Detailed client responses from the survey are shown below:

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PPC Associates Simple Way to Measure AdWords Account Performance

About the Author

David Rodnitzky is founder and CEO of PPC Associates, a position he has held since the Company's inception in 2008. Prior to PPC Associates, he held senior marketing roles at several Internet companies, including Rentals.com (2000-2001), FindLaw (2001-2004), Adteractive (2004-2006), and Mercantila (2007-2008). David currently serves on advisory boards for several companies, including Marin Software, MediaBoost, Mediacause, and a stealth travel start-up. David has a B.A. with honors from the University of Chicago and a J.D. with honors from the University of Iowa. In his spare time, David enjoys salmon fishing, hiking, spending time with his family, and watching the Iowa Hawkeyes, not necessarily in that order.

Contact Us
To learn more about how PPC Associates can help improve your SEM, Facebook, or display campaigns, please contact us at 650-539-4124 or visit our website at www.PPCAssociates.com.

PPC Associates Simple Way to Measure AdWords Account Performance

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