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Even though you can set up a PPC campaign without conversion tracking, it will be very difficult to optimize the account without having conversion tracking set up.
First and foremost, embedding tracking code on each website page and or landing page is the most important first step. The search engine or PPC service you use will likely allow you to set up an account and provide detailed instructions how to insert code on your webpages or landing pages. If you are using Google, you will also want to make sure that your Google Analytics account is linked to your Google Adwords account. This can be done by logging into AdWords and clicking on Google Analytics from the Tools and Analysis tab.
After, linking your Analytics and Adwords account in Google all your data will show on your Analytics Account. Traffic sources from sources other than Google will show as organic in your Google Adwords account so it might be worthwhile to create URLs for your traffic sources. By using the Google URL builder you can uniquely identify foreign traffic sources. By creating unique URLs you will acquire data that will tell you which traffic source results in the best ROI. Also it might be worthwhile to include Goal Funnels in Google Analytics to identify the paths customers take before they convert. To do this all you need to do is to go to the "Goals section" and add a new goal. The URL of the confirmation page will be needed to complete the process.
Running a Google Adwords Report can be useful, however it is limited by the data it provides. For example about 50% of traffic is unidentified in the Adwords report. Also it is hard to identify exactly from where and by which word traffic is converting on your website. By using Google Analytics and setting up URL parameters that identify the keywords and other identifying qualitiies it will really enable you to improve your PPC performance over the long haul. When you have data that shows exactly from where and by which keyword a person enters and converts on your webpage. This will allow you to clearly identify which words result in the greatest ROI regardless of the cost spent. For example without this information, you may see on your Adwords account two different keywords that resulted in a lead, but at costs of 10 dollars and 20 dollars, respectively. By setting up the aforementioned tracking we would be able to tell that even though lead B costs 20 dollars, every 3 leads equals a paying customer at a 500 dollar sale. Whereas lead A only costs 10 dollars, but only every 10 customers results in a 500 dollar sale. It would make sense to spend more on word B which has a higher ROI. Overall, we highly recommend setting up PPC tracking on your PPC account. After a while a good set up will allow you to really differentiate your performance and get a great ROI on your advertising investment.