The Lin-Rodnitzky Ratio. 3Q Digital s simple way to measure AdWords account performance.

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1 by David Rodnitzky Founder & CEO 3Q Digital The Lin-Rodnitzky Ratio. 3Q Digital s simple way to measure AdWords account performance Harte Hanks Inc. All rights reserved. hartehanks.com

2 An introduction to the 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 didn t give the marketers any more comfort; it just created frustration. OK, they d say, I know I have to improve a lot of things in my account, but does that mean I m absolutely terrible or close to perfection? The truth, of course, is that there is no easy answer to this question (if there was, people wouldn t 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. We ll now walk you through how to determine your own account s ratio, and some suggestions for how to improve your ratio going forward. 3Q DIGITAL S SIMPLE WAY TO MEASURE ADWORDS ACCOUNT PERFORMANCE 2

3 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 Google s helpful guide to conversion tracking here: 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 you ve 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. Make sure you have set a date range for data in your AdWords account of at least two weeks and preferably several months; 2. Go to the Keyword tab in the AdWords interface; 3

4 3. Scroll down to the See Search Terms tab and select All This will take you to a report that shows you data for all of your search queries. It s 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 nonconverting queries, read our white paper on Alpha Beta campaign structure (available at The search query report should look something like this: The next step is to set up a filter against this list of search queries. To do this, just follow these steps: 1. Click the filter tab above your search query results. The select create filter. A yellow box should appear. 2. From the drop-down, choose conversions and then choose conversions (1-per-click). 3. Use the > = greater than or equal to option and enter 1 in the box. Press apply. 4

5 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 $ Thus, the math looks like this: /79.90 = 5.91 That s your Lin-Rodnitzky Ratio. 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, you ll see the results of your filter, and below thatyou ll see the results for the overall account. 5

6 What does it all mean? We ve reviewed hundreds of AdWords accounts over the last four years using the Lin-Rodnitzky Ratio, and we ve concluded that healthy accounts typically have a Lin-Rodnitzky Ratio between On a continuum of scores, this is what each score range generally means: : 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 : 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 : 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. 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, we ve 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 don t 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. Here s 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!): 6

7 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 efects. Again, you can create simple filters to identify these bidding opportunities. 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 we ve noted in our white paper The Seven Habits of Highly Efective Search Engine Marketing (available at 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 you re guaranteed to have a great Lin-Rodnitzky Ratio and an ROI-positive account! 7

8 About the author David Rodnitzky is founder and CEO of 3Q Digital, a position he has held since the Company s inception in Prior to 3Q Digital, he held senior marketing roles at several Internet companies, including Rentals.com ( ), FindLaw ( ), Adteractive ( ), and Mercantila ( ). 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. About 3Q Digital 3Q Digital, a digital marketing agency based in Silicon Valley, San Francisco, San Diego, and Chicago, believes clients deserve three things from an agency: passionate service and complete transparency (EQ); channelspecific intelligence and knowledge (IQ) to develop new strategies as digital marketing evolves; and rock-solid execution (XQ) to ensure optimization of every campaign. The company developed these beliefs as PPC Associates ( ), which made its mark as a pioneering, results-oriented SEM agency before expanding to offer best-in-class services in display advertising, social media advertising, mobile advertising, video advertising, and SEO. 3Q Digital works with some of today s fastestgrowing clients, including GoPro, 23andMe, 2U, SurveyMonkey, Fitbit, and RentTheRunway. 8

9 The Lin-Rodnitzky Ratio. 3Q Digital s simple way to measure Adwords account performance. by David Rodnitzky Founder & CEO 3Q Digital Contact us To learn more about how 3Q Digital can improve your digital marketing campaigns, please contact us at or visit our website at 3Q Digital A Harte Hanks company Silicon Valley 155 Bovet Rd. Suite 480 San Mateo, CA Harte Hanks Inc. All rights reserved. hartehanks.com

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