Calculating AdWords & Paid Search Success

Author Justin Smith
by Justin Smith, CEO

As we’ve been analyzing our most successful clients and working on marketing plans, we’ve seen a pattern…. pay per click advertising.

It’s true.

If you can optimize your pay per click campaign it can be very successful and sometimes the results are exponential. Spend a dollar and make two I often say. Who wouldn’t take that?

Google AdWords advertising can be scary, so we really do need to take a good look to understand what it’s all about and how we can reduce risk. It’s all about stats and numbers. It’s not a guessing game and if you make it one you’re setting yourself up to potentially lose a significant chuck of cash. Spending $5,000 a month or $200,000 a month can seem out of the question, but it’s not when the ROI (return on investment) is there.

In this article we’ll look more in depth on whether PPC (pay per click) is a method of advertising you may be interested in and if you feel it’s a method that’ll work in your business model. To learn more about how we can help, visit our Adwords Management services page.

Will Google AdWords work for me? This depends on a few factors.

1) Conversion Rate (what percent of users purchase after visiting) – A typical conversion rate is 1.5% on the low end. We usually use this number.
2) CPC (cost per click) – How much will it cost for each visit
3) Average Sale – How much is the average sale
4) Profit Margin – How much do you make on each dollar purchased
4) Potential Visitors – How many visitors do your keywords allow you to receive. Each market and industry has a certain amount of searches per day.

These 3 variables can usually tell you if you’ll make money. An example is a client’s marketing plan we’ve been working on.

We’ll do this based on 10,000 visits purchased.

20,000 visitors @ $.50 (CPC) = $10,000.
20,000 visits at 1.5% conversion rate = 300 orders.
300 orders X $340 (average order) = $102,000 in sales.
$102,000 (total sales) X .30 (30% profit margin) = $30,600 profit.

Well, the numbers don’t lie. That’s a lot of money to make. Yes, it was a $10,000 investment but it was a 300% return. he saying "you have to spend money to make money" is the first thing every business man and business woman knows and paid search is the perfect example.

The biggest thing to look at is whether or not you have a product with a decent profit margin. If you don’t, any advertising is tough. The next variable we need to take into consideration is the CPC. The cost per click is going to let us know if this is possible. If the most per click was $3 for the industry in the example above, PPC wouldn’t be profitable. As you see, it’s a science and not a guessing game. Guessing is expensive.

The next step in pay per click optimization is looking at the conversation rate. A 3% conversion rate in the example above would yield results that would be out of the world. Huge numbers. The numbers we’d all like to see. The way to achieve a conversion rate above and beyond the industry average is to optimize the pay per click campaign. The way this is done is to remove keyword that are not converting, run ads move often during times that visitors purchase the most and be sure clients are being driven to the page on the website that converts on the highest level for the keyword. This is done through constantly monitoring and updating the campaign. Creating powerful landing page for specific keywords that have clear calls of action (COA) is also a very important step.

Remember, spending money to make money is necessary, but spend wisely. If you’d like help in creating a successful PPC campaign, contact us.

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