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Smart Pay Per Click Makes Money

By: ada thomas

Read More About Pay Per Click

You in fact need to understand the goals of your pay per click campaigns
. You want to know how many customers you want to try to add and how much you can offer to pay to acquire each new client. If you don't know what a new customer is worth, then that is something you really need to find out. Otherwise, you're shooting in the dark.

As trained search engine marketers, we have clients asking us to make X sales per day or per month while spending Y dollars. This is a complicated state of affairs because it often means we want to get clicks as inexpensively as possible while maintaining a certain level of conversions. The thing that makes this a complicated state of affairs is that as click bids go down, often conversion rates go down as well. One cause is that to make low cost traffic, you often have to use content networks as well as search results, which are less targeted and convert at lower rates.

Even so, to even tackle the problem we want to understand the numbers. Here is a very straightforward formula to determine how much you can spend per click on your paid search campaign:

Cost Per Click = Amount You Can offer to Pay Per client * Conversion Rate

OR

Cost Per Click = Average Sale * revenue Margin * Conversion Rate

For instance, if you make $50 revenue per customer, on average, with a 50% profit margin, then you can give to pay up to $25 to get a new client. You would only break even at that rate, but at least you would add a new patron and would have the opportunity to sell more products or services to that customer in the future. Assuming a conversion rate of 1%, then the numbers work out like this:

Cost Per Click = $25.00 * .01 = $.25

OR

Cost Per Click = $50.00 * .50 * .01 = $.25

So you now know that you can afford to pay a quarter per click. If you can double your conversion rate, then you can double your revenue or double your bids.

As you watch your PPC campaign, you might find that specific products sell much better on-line than others. If this is the case, then you might want to re-work your numbers to give emphasis to the products that are selling. For instance, let's say you have the following products, which are selling via Yahoo! in the following proportions:

Product A - $25 profit per sale - 50%
Product B - $10 revenue per sale - 10%
Product C - $40 profit per sale - 40%

Then your average profit per sale is as follows:
($25 * .50) + ($10 * .10) + ($40 * .40) = $12.50 + $1 + $16 = $29.50

Based on these numbers, you know that you can now pay up to about $.30 for clicks.
Or if there is sufficient traffic related to Product C, you might want to start allocating more of your budget for it and less for the other products, since it generates the most revenue per sale.

As mentioned earlier, it may even be worth taking a loss on the first sale just to get the client. If you know the lifetime value of your clients, then you can make this call. If you generally only do business with your patrons a single time, then that is another area of your business you need to investigate - how to sell more to people who have already done business with you. This is where you should use vehicles like email, newsletters, blogs, etc. to create a community of customers who come to rely on you for information. It all comes down to creating a holistic, integrated marketing plan, and it starts with knowing your numbers.

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