Pay Per Click March 3rd, 2010
I just wanted to touch briefly on the concept of Pay Per Click Advertising, specifically budget setting. The idea that I’ll be presenting here is quite simple. If you are making a profit, consider raising your budget.
Let us suppose that we’re selling a $200 product and our margin is 50%. That means we make $100 each time our product is sold. Now, let’s assume that we have a consistent conversion rate on our website of 2% (meaning 2% of our visitors buy the product). Finally, let us also assume that we are running a Pay Per Click campaign, averaging $1.25/click on our ads.
Are you with me so far? Good.
So here then, is our profit calculation. If you don’t need to fully grasp the formula, don’t sweat it. The results will bring it all together:
Number of sales x profit per sale ($100) – PPC Budget
In each of these two examples, I have left all of the above mentioned variables the same and only changed the budget. Doing this changes the number of visitors, the number of sales, and how much profit we make. Look at how the profit made grows WITH the budget. This means, that as long as the fixed elements are consistent (conversion rate, cost per click etc), then the more I spend the more I make!
If you are running a PPC campaign and not getting that return on investment, then I have two suggestions for you.
1) Have your PPC looked after by a professional company who can optimize the campaigns to get you a better visitor who is more likely to convert (in many cases at a lower cost!)
2) Ensure that your marketing company is measuring, tracking and testing elements on the website to improve both your conversion rates and marketing campaigns. Remember that there are two sides to it. The first is quality and quantity of your traffic and the second is how good of a job your website is doing of converting that traffic.
Remember – marketing should always be looked at as an investment for growth and profits, not an expense. Once you determine what an effective cost per lead or sale is, as long as that number is met you should be looking at how much money you can possibly spend.