Pay Per Click March 23rd, 2017
Let’s face facts: Online advertising is incredibly competitive. No matter where your customers go online, they face a near-constant barrage of marketing tactics.
Trying to get more people to click on your ads in the middle of this marketing maelstrom can be a huge challenge.
Unfortunately, this is a real problem for advertisers. Historically, clicks cost pennies, so if you wanted more conversions you could just up your advertising budget and drive more traffic to your site. And, all that extra traffic meant extra conversions.
These days, things are much more complicated. Paid traffic is expensive, so most companies can’t afford to just bump up their budget and drive more traffic to their site.
Well, marketers are scrappy folks, so they came up with a solution. If you can’t increase conversions by increasing traffic, there has to be a way to get more conversions from your existing traffic, right?
And so conversion rate optimization was born.
Now, conversion rate optimization makes a ton of sense — improve your on-page experience and you should get more conversions — but is it really the right solution to your advertising problems?Or is traffic still the answer?
To answer those questions, let’s compare conversion rate optimization (CRO) and pay-per-click (PPC) advertising to each other.
Imagine you’re marketing widgets for your company using paid search. Clicks cost anywhere from $1 to $10, but on average they run about $5 a click.
You have a $25,000 budget, so you can expect to get about 5,000 clicks from your ad spend.
Here’s what that traffic looks like:
Pretty impressive, no?
You’ve got a decent landing page, so you typically convert about 4% of your traffic. As a result, for your $25,000 you can expect 200 conversions at an average cost-per-conversion of $125.
See all those little green guys? Those are the people who converted as a result of your campaign.
Unfortunately, your results aren’t good enough for your boss. He wants more conversions and he wants to spend less on each conversion.
Fortunately, you happen to have the answer: conversion rate optimization! You make some tweaks to your landing page and set up an A/B test. Since you’re good at your job, your new page has a conversion rate that’s 4.8% to 20% higher than your original page!
Your new cost-per-conversion is $104.16 — that’s 16.7% lower than your old $125 cost-per-conversion, so everyone’s happy.
A win for conversion rate optimization, right?
Absolutely, but so far we’ve only proven that conversion rate optimization is a good idea. That’s nice, but it doesn’t answer the question of whether or not CRO is the best way to optimize your campaigns.
Now wait a second, you might be thinking, the paid search budget is fixed and we have a consistent cost-per-click. If we can’t change either of those variables, how could we possibly use traffic to improve the performance of our paid search campaigns?
To answer that question, we have to take a look at the unspoken assumption beneath all of our calculations. We’re assuming that all of our traffic has the same likelihood of converting.
But is visitor #3 on our figure really just as likely to convert as visitor #3,497?
Turns out, the answer is no.
At Disruptive Advertising, we’ve audited well over 2,000 paid search accounts and discovered that the average AdWords account spends 76% of its ad budget on search terms that never convert.
In other words, only 1 out of every 4 clicks has any real chance of converting. The rest come from searches that really aren’t all that relevant to your landing page.
So, instead of 5,000 potential customers, that $25,000 of ad spend is only really driving 1,250 potential customers to your landing page.
Those 3,750 irrelevant clicks have some pretty serious implications for your paid search campaigns.
First of all, remember that A/B test you ran? You thought you were testing this:
When in reality you were really testing this:
And your test results actually looked like this:
But hey, that actually makes things look better, right? When you consider your relevant traffic, the conversion rate for your control was a whopping 16% and things only got better when you created your variant.
So really, if you think about it, since you’re only paying $5 for each of those clicks, your CRO test dropped your cost-per-conversion from $31.25 to $26.04.
I’d wait just a second before you run off and share your big news, though.
Remember, you weren’t paying $5 a click for those 1,250 relevant visitors — you paid $20 a click. The other $15 per click paid for 3,750 irrelevant clicks, so your effective cost per click for relevant clicks is $20, not $5.
When you take all that wasted spend into account, your optimized cost-per-conversion was $104.17.
If you had only been paying for relevant clicks, your baseline cost-per-conversion ($31.25) would have been one-third of the cost-per-conversion you’re getting from your optimized page ($104.17).
The simple fact of the matter is, with all those irrelevant clicks in your account, it would take a CRO miracle to get your cost-per-conversion anywhere close to $30.
Now, don’t get me wrong, I think CRO is awesome. But, you can’t fix a traffic quality issue with testing.
However, if you can can improve the quality of your traffic, you can dramatically improve the performance of your ad campaigns.
For example, here’s what happened to cost-per-conversion as we eliminated wasted paid search ad spend for one of our clients:
We only cut their wasted ad spend by 25%, but their cost-per-conversion dropped by 75%.
How? Well, to put it simply, the relationship between wasted ad spend and cost-per-conversion isn’t linear — it’s exponential.
As we’ve seen in this simple example, that means small improvements in traffic quality lead to massive improvements in campaign performance — improvements that even the best CRO efforts can rarely match.
When it comes to traffic, most marketers tend to focus on quantity over quality. When your traffic is free, this is probably a good stance to take.
However, if you’re paying for every click, you can’t afford to pay for the wrong traffic.
In a paid advertising situation, every irrelevant click increases your cost-per-conversion. And, it increases your cost-per-conversion far more rapidly than CRO can bring it down.
So, if you’re looking to get more bang for your buck from your marketing, the first place to look is at your traffic quality. Then, once you’re paying for the right traffic, CRO will allow you to get every possible conversion out of your ad spend.
What are your thoughts on this analysis? Do you agree? How do you prioritize traffic and CRO?