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How long has your competitor been running adwords campaigns? Are you basing your assumption that he has better ROMI than you are experiencing on that ...
Do you understand the difference of ROMI and ROI?
ROI is a directly attributable return on your investment.
ROMI means 'return on marketing investment' this is inclusive of branding, top-of-the-mind name recognition, and in the case of the Internet: Increased type-in direct returns as the result of your advertising campaigns. You want to use a origin cookie at a minimum to track ad words referrals. You can use a more sophisticated finger-print and database tracking too.
I agree with Thommy about better tracking and attribution and allocation of ROMI.
Simplest thing to do is make some landing pages, 2 or 3, using more contemporary design. Make a Google Analytics account for use on those pages and attach that to your Ad Words account.
Try for a lot of long tail keyword phrases with lower click costs -- test if this improves your ROMI/ROI
Set up goals to track your Ad Words referrals' fall off (points of failure) -- include user activated responses so you have bread crumbs to follow your tracking and can see where your weak points are in your conversion funnel.
You should be able to get a 10 to 1 conversion (cash paid in) ratio from an Ad Words referral. Customer lifetime value (CLTV) is the real measurement to determine your ROMI.
If a AdWords referral conversion costs you $25 and the customer spends $300 during his CLTV and you net $50 is what I mean. You doubled your advertising spend in gross profit on that customer acquisition.
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