How to Calculate Profitability in Google Ads for Lead Generation & Ecommerce

How to Calculate Profitability in Google Ads for Lead Generation & Ecommerce


With the introduction of custom columns in the Google Ads interface, tracking profitability for all types of campaigns has become easier than ever. Below we discuss what metrics you’ll need, how to come up with the correct equations, and how to enter those equations into the Google Ads interface for simple viewing.

For Lead Generation Campaigns

Unlike the relatively straight forward revenue of ecommerce, lead generation profitability requires additional metrics – but it is still achievable. In order to get profitability, you’ll need the following metrics:

Conversions – This should already be set up through Analytics or Google Ads (Learn how to set up conversion tracking).

Lead to Close Rate – Not every conversion is going to result in a sale. Make sure you understand the number of leads it takes to close that sale.

(Leads Closed / Total Conversions) = Lead to Close Rate

For every ten leads, we obtain one new client.

Revenue per Closed Lead – Depending on your product/service, you may need to make an estimation here. The goal is to get a good estimation to get a high-level overview of profitability.

On average my clients spend $500.

Note: If you offer a recurring service, like a cleaning company, it would be beneficial to know the lifetime value for each new client. Use this value instead, if available.

Gross Margin – Let’s take the costs associated with your business and add that to the mix for true profitability. You can achieve this by using the following formula:

(Revenue – Cost of Goods Sold) / Revenue

Cost – Simply, your dollars spent on Google Ads during a given period.

Now that we’ve got all of the pieces together, let’s get everything wrapped up in one formula to calculate your profitability for lead generation.

Profits for Leads

(((# of Leads x Lead to Close Rate) x Revenue per Closed Lead) x Gross Margin) – Cost

See Adding Custom Columns to Google Ads – Tracking Profitability below for adding this information to your Google Ads interface.

For Ecommerce Campaigns

Just like lead generation campaigns, ecommerce campaigns require a bit of backend knowledge of the business to set up true profitability metrics in Google Ads.

You will need to know the following to make this work:

Conversion Value – For ecommerce campaigns, you’ll need to be tracking the conversion value for each sale. Simply put, making sure anytime someone clicks through your ad and makes a purchase on your website, the Google Ads interface correctly displays the revenue from each sale.

Gross Margin – Let’s take the costs associated with products and add that to the mix for a true profit. You can achieve this by using the following formula:

(Revenue – Cost of Goods Sold)/ Revenue

Cost – Simply your dollars spent on Google Ads during a given period.

Now let’s put it all together.

Profits for Ecommerce

(Conversion Value x Gross Margin) – Cost

And that’s it!

You now have the proper metrics to track how profitable your Google Ads account is for your business.

The next step is to add this into the Google Ads interface using custom columns so you can see the results of your new formula.

Adding Custom Columns to Google Ads

    1. Click on your columns in the Google Ads interface, and hit ‘Modify Columns’

    1. Find ‘Custom Columns’ in the last row & click +New Column

  1. Add the appropriate formula
      • Lead Generation: Add the following lead generation profitability formula

      • E-commerce: Add the following E-commerce profitability formula

  2. Save & add the custom columns into your interface just like any other metric.

This opens a whole new window in your ability to increase your business’ growth potential through pay per click advertising.

One note of caution: the end number of profitability isn’t always everything in a Google Ads campaign.

Lots of users start their searches at the information level through your ads, then come back later through a new ad. This is where using an attribution model other than ‘Last Click’ will help.

In The Pipeline – Cost of Goods Sold Attribute

Google Shopping plans on rolling out a Cost of Goods Sold attribute to shopping feeds. This will allow for an exact measurement of profitability at the product level for your e-commerce campaigns.

Alex Langton

A digital advertising analyst at Rocket Clicks since September 2017, Alex loves to find new ways advance client accounts.