 |
Increase Internet ROI: Why and How to Measure and Improve Pay Per Click ROI
Posted by randy on: 2005-10-26 08:11:35
Increase Internet ROI: Why and How to Measure and Improve Pay Per Click ROI
Brian Carter
I just read the disturbing results of a joint study on the
performance of search marketing firms. Jupiter Research and
iProspect surveyed 636 qualified search marketers and 224 search
agencies, and found that:
- Most internet marketing firms look at metrics like web site
traffic or search engine rankings, rather than business results
such as ROI (return on investment) or total sales generated from
search engine leads. - Fewer than 40% of search engine marketers
are evaluated on ROI or total sales. - Only 1 out of 7 search
marketers measure overall ROI of combined SEO (search engine
optimization) and PPC (pay per click) campaigns. - Most
marketers cannot separate the individual ROI of the two
different channels - 45% said they cannot determine whether SEO
or PPC provides a higher ROI.
Is there a philosophy behind your business's approach to pay per
click (PPC)? The picture painted by my consultant peers is that
most companies think you just choose a bunch of keywords, set a
monthly budget, and then pay it. Fine-tuning for higher profits
hasn't occurred to them.
For other companies, there may be some thought behind it. Some
believe that expansion, higher revenues, and customer
acquisition outweigh nearly any cost. But the last 6 years of
hard knocks entrepreneurship have drilled some different
business basics into my soul.
I believe every advertising campaign should break even or profit
on its own merit. This conviction grew while I was investing my
own money in my business efforts. Now I work for someone else
(feelgoodstore.com) as an internet marketer, and one of our
major revenue sources is pay per click. I understand their money
isn't limitless, and I treat it as if it's my own- I don't take
ad spending lightly.
Thus, my modus operandi is to treat each keyword individually.
It either converts for us at a rate and for a price which is
sustainable and profitable, or it's a loser, and I delete it. I
generally give a keyword 100 clicks before cutting it loose.
That 1% conversion rate is my cut-off point.
With Google adwords, it's been easy (Overture has been unable to
get us conversion numbers or explain what the problem is, so
we're going to have to write our own code to track it). The
conversion rate and cost per conversion are calculated for you,
so I compare those numbers to the profit margin on the items
that correlate to each keyword. Oh, by the way, Adwords' "Budget
Optimizer", by their own admission, isn't recommended if you're
"focused on measuring conversions or values of ad clicks." Ummm,
yeah, give me some of the unvaluable ones that don't convert,
please... duh!
Let me break that down for you... to increase your internet ROI,
you must understand the business basics of profit margin,
conversion rate, and break-even point. Many articles have been
written on these topics, so here's a summary: For each item,
subtract the cost from the price, and you have profit margin.
Conversion rate is the percentage of click-throughs who actually
buy from you. The break-even point for any item is the profit
margin multiplied by the conversion rate.
If you profit $10 on a $30 item, and 5% of your click-throughs
convert, then you can't pay more than $0.50 per click. You see,
5% is 1 out of every 20 people, and if it takes 20 people to
make a sale, that's going to cost you $10 at $0.50 per click,
and that's your break-even point. If you do better than break
even, you're making a profit.
You can do more advanced things if your website coding allows
you to query which items and/or total sale amounts associated
with particular keywords. For example, I've found a certain word
that's in a number of our keyword phrases, and for some reason,
buyers who like that word tend to buy more than one item and
have a higher total sale. I can use that to calculate my
break-even point instead of just the one item.
And when you have months and months of historical data to query,
you can find out how often different customer groups return and
buy more, and thus what the lifetime value of a customer is.
Then you can bid for clicks to get customers, rather than just
to sell an item once.
But I'd caution you to go gung-ho basing your maximum bids on
lifetime customer value before you have this kind of data. You
must be sure that your site fosters multiple lifetime purchases,
and know which keywords bring in the repeat customers.
Otherwise, you're shooting a shotgun in the dark... and you
might get hit by a richochet.
Why is it so important to increase your ROI on your PPC bids?
It's not just so that you can increase profits, although that's
one of your goals. It's also because, ultimately, the most
efficient business will be able to bid the highest amount for
each keyword and still break even or profit. And it's not just
about being #1 - there are only so many visible PPC spots. If
you're sloppy about it and waste money, you'll get pushed out of
the visible competition. There are a finite number of valuable,
converting keywords for each product, so if you want to sell
your product on the internet, you must measure and improve your
PPC ROI.
About the author:
Since 1999, San Diego SEO Consultant Brian B. Carter, MS, has
reached more than 2 million readers online. His most popular
site ranks in the top 1% of all major websites. Brian's second
book, "How I Made $78,024.44 in Six Months Using the Newest
Secrets of AdSense and Overlooked Keywords" will be available in
October, 2005. For more, see
http://ranking-high-on-search-engines.com/
Business open community website
http://www.business-business.biz
Submit articles
http://www.business-business.biz/submitstory.php
Retirement forum
http://www.business-business.biz/forums.php
Retirement open community website
Submit articles
Retirement forum
Investment open community website
Submit articles
Investment forum
Related Stories
Post new Comment
This site does not allow anonymous comments. Registered members can login to participate. Registration is free and takes only a few seconds