It’s an important question… and you can answer it within two minutes, using this little-known (but ingenious) formula… the Lin Rodnitzky Ratio.
The LR ratio is a simple way to measure how efficiently a campaign or account is spending its budget, telling you what % of its spend is actually going towards traffic that generates a return (which you won’t know by looking at ROI or CPAs alone).
The formula is:
The lower the resulting number (the smaller the difference between the two inputs) – the more conservative the account is… and the more tightly focussed on what has proven to work.
To work out the Lin Rodnitzky Ratio for your account:
- Take a long enough date range to show substantial conversion data, representative of how the account generally performs
- From all search campaigns, navigate to keywords > search terms
- Make sure you have the cost/conv. column in place
- Create a filter to show only search terms that have had greater than 0 conversions
- Read off your cost/conv. from the total row. That’s your first input
- Read off your cost/conv. from the filtered search terms row. That’s your second input
- Divide the first by the second, and behold your LR Ratio
This video guides you through the process:
The logic of using search terms as the basis is that this is the rawest measure of
what you are actually spending your money on with paid search.
Comparing how freely you spend on all activity in relation to those proven, converting elements of it, you reach an almost-perfect insight into where an account sits on the conservative-expansive scale. The higher the number, the more ‘freely’ the account is spending…
What is a Good Lin Rodnitzki Score?
The creators of the scale (Will Lin and David Rodnitzky of Q3 Digital) suggested the following interpretation:
“healthy accounts typically have a Lin-Rodnitzky Ratio between 1.5 and 2.0.”
1.0-1.5: The account is conservative. There is very low wasted spend, but 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.”
Having used this excellent formula for a while, I personally think these groupings are a little conservative, with a score of up to 2.5 usually looking healthy to me.
In any case, there may be good reasons to operate outside the 1.5 – 2.0 zone, depending on the context and priorities of the advertiser…
But if you find that your accounts generally sit outside the 1.5 – 2.5 range of L-R scores, you can probably infer that you are conservative or cavalier as an account manager. An interesting insight to have…
As well as a good sanity check on your own accounts, the LR ratio gives a good, quick indication of an account’s potential – either to save money, or to be more ambitious.
Could be a nice addition next time you run an account audit!
