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PPC – The Commercial Factor

Posted by Steve | Posted in Pay Per Click Advertising 101 | Posted on 23-08-2011

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It is not difficult to drive PPC traffic to your site. Properly constructed ads will do this and minimize the cost of doing so but driving traffic is of no real use unless you make money.

Sure, if you are a multinational or you have some venture capital backing and there is another agenda such as gaining market share and medium term profit is secondary thats fine but this blog is about Joe and Jill  Average who wants to earn some money from their website now.

At the end of the day its all about math and here are the components of the equation.

  1. The Conversion Rate – This is the number of sales you make of your product divided by the number of site visits from the Adwords Campaign
  2. Cost per Conversion –  This is the cost of your Adwords Campaign for the specified product divided by the number of conversions

So, lets say that your current ad costs you $2 per click and your Product Margin ( Sales Price minus cost price) = $30

If for every 100 clicks on your Ad you made 5 sales (conversion rate of 5 divided by 100 = 5%)  your Cost per conversion would be

The cost of the Google Campaign for 100 click ($2 per click) = $200

The conversion rate of 5% would give you 5 Sales

5 Sales would give you a Margin of (5 Sales X $30 per sale) = $180

This means that the cost of the Clicks was $200 and the sale margin was $180 and you just lost money.

What are the options?

The options are, lower you ad bit price, increase your conversions or increase your sales margin.

Find some of the strategies to do this in our next post.

 

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