Understanding PPC

You actually want to understand the goals of your PPC campaigns
. You want to know how many clients you want to try to add and how much you can give to pay to get each new client. If you don't know what a new patron is worth, then that is something you in fact need to find out. If not, you're shooting in the dark.

As expert search engine marketers, we have customers asking us to make X sales per day or per month while spending Y dollars. This is a difficult state of affairs because it often means we want to get clicks as economically as possible while maintaining a particular level of conversions. The thing that makes this a difficult 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 need 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 customer * Conversion Rate

OR

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

For instance, if you make $50 revenue per patron, on average, with a 50% profit margin, then you can offer to pay up to $25 to acquire a new customer. You would only break even at that rate, but at least you would add a new client and would have the opportunity to sell more products or services to that client 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 offer 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 pay per click 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 stress the products that are selling. For example, let's say you have the following products, which are selling via Yahoo! in the following proportions:

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

As mentioned earlier, it may even be worth taking a loss on the first sale just to get the patron. If you know the lifetime value of your patrons, then you can make this call. If you generally only do business with your customers 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 clients 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.

Article Source: http://www.articleexchange.net

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