If you’re an eCommerce business, then that is relatively easy. Every time someone places an order that comes through AdWords, the value of that order will be fed back into AdWords. You can then see exactly what revenue you’ve generated for the money you’ve spent.
Return on Ad Spend (ROAS) for ecommerce business can vary. It depends what your overheads are, it depends what your margins are. It can range from 400% to 1000% or even 2000%. If you know your numbers, then you can see if that’s profitable.
If you’re managing your account yourself then you need to be monitoring this. If you have an agency managing your account for you then you need to be getting regular reports to show you what you’re spending, what you’re making, and the return you’re getting for that ad spend.
When talking about reporting, it’s also important to make sure you’re getting meaningful data in those reports. It’s common for agencies to send out reports showing vast amounts of data and charts. But if that data is meaningless and doesn’t help you manage your business then it’s really a useless report. You need to make sure that whatever reporting you’re getting gives you the information that YOU need to know that the account is profitable.
At the VERY minimum for an ecommerce business you need to see exactly what you’re spending and how much revenue that spend has generated. These two figures will give you your ROAS, which is calculated by dividing your revenue by the cost (revenue/cost).
Once you have your ROAS you should be able to work out whether that is a profitable percentage based on margins, overheads and other costs that need to be accounted for. Now an agency can’t tell you what your other costs are, but a good one will talk to you and help you work out what overall ROAS you need to still have a profit after all other costs have been deducted.
This is how you’d know if you’re making money with your AdWords.