More and more people are trying Google AdWords to promote their business online.  If it's done right, it can be a fantastic method of advertising.  I recently spoke with a gentleman that converted a $100 Google Adwords spending budget into $1000 profit (a tenfold increase) by using ads effectively.  However, there are many (myself included!) that have lost more money than gained through AdWords.  The good news about online advertising is that it's very easy to track its effectiveness.  The purpose of this blog post is to discuss how to determine if an ad campaign is effective  Pay Per Click ad campaign could be effective for your business.  You can avoid losing and wasting money on advertising by following this simple formula outlined below.

The formula I follow is this: take your average transaction size (in dollars) and determine your average profit from that transaction.  Multiply that number by your website's conversion rate, and then you'll know how much you can afford to spend on pay per click (PPC) advertising.

Max PPC = avg profit per transaction * average conversion rate

Let's do a case study for an online fabric store.  Your average transaction is $68, of which 35% of it is profit.  This means for each transaction, you're averaging $23.80 profit.  Out of a hundred people that visit your site, let's say 2 people buy - a 2% or 0.02 conversion rate.  When you multiply your conversion rate by your average profit per transaction, you get roughly $0.48.  This means in order for you to profit from your pay per click campaign, you should architect your pay per click campaign so that you're spending no more than 48 cents per click in order to break even.  This is achievable, especially when doing phrase or exact matching on your keywords (more on that topic later).

Let's consider another scenario, an online quilt pattern store where the average transaction is $10, of which 40% of it is profit ($4).  For this business, 1 out of 100 visitors turns into a customer (a 1% conversion rate).  Multiply the conversion rate by the average profit is $0.04, which means in order to be successful at this campaign, I need to be paying no more than $0.04 per click.  This is not as achievable, as the minimum bid amount for an ad is $0.05.

To improve your ad campaign, you can find more keywords that cost less per click (usually keywords with fewer searches) or improve your website's conversion rate. Two previous blog posts mention increasing your website's conversion rate: Conversion Rate Webinar and How To Increase Your Conversion Rate.

For those that aren't familiar with Google AdWords: Google AdWords is the name of Google's advertising network.  These ads are usually text ads.  You specify the text you want to appear, the web page you want visitors to go to when they click the ad, the keywords you want the ad to appear under, and finally how much you're willing to spend for each click.  Unlike traditional advertising, you pay only when someone clicks on the ad.  The location and frequency at which your ad is displayed is based on an auction.  You bid on the keywords you want to go after. 

Comments

• No one has commented yet.

Your Name:
Comments:
Security code: