An Economics Question I am having trouble with.?

Question

This is a question I was recently asked in my economics class and I have come to my own conclusion but I wanted to see if there were any other angles I missed. Appreciate it.

A firm recently spent $100 on Google Adwords and generated 100 extra visits to the firm’s web site, 5 of which resulted in a purchase. To pay for the change, they dropped the banner advertising on ESPN.com, saving $1000, but which also reduced the number of visits to their web site by 500, and 20 fewer sales. Sales from visitors from ESPN.com were, on average, 25% higher than sales from visitors from Google Adwords. Evaluate the decision to shift advertising money from ESPN.com to Google Adwords.

Answer 1

$100 on Google ensured 5 purchases or 5% hit, let it be 'X' for each purchase (or 5X per 100 ad dollars).

$1000 on ESPN ensured 20 purchases or 2% hit, but it were X+25% for each purchase or 1.25X (or 2*X*1.25=2.5X per 100 ad dollars)

But to have same value as Google, ESPN should be efficient not 2% but 5% out of 100, thus it suppose to be +150% or 250% out of what Google does.

Conclusion: from sales volume point of view change in ad location provided loss (fall in sales volume) but from efficiency point of view change in ad location provided higher efficiency per ad dollar.

Google: 5X per 100 ad dollars.

ESPN: 2.5X per 100 ad dollars.

Answer 2

Use the ROI (Return On Investment) formula for this as well...

ROI = (Earnings - Cost of Advertising) / Cost Of Advertising x 100%

Whichever one has a higher ROI % is the one you should invest more in.

Also talk about the qualitative reason for advertising on both - is there any synergy between them?