Traffic Generation Using PPC

 

 

Online ad spending is expected to grow approximately 16% over the next few years. Compare this to expected GDP growth of 4‐5% and you quickly see this is an area in which you should be involved, if not at least aware. While the best search engine marketing(SEM) campaigns involve significant investment in both search engine optimization(SEO) and PPC, the level of control, near-immediate feedback and insight into ROI make PPC a highly pursued and highly rewarded strategy. However too many businesses fail with their PPC campaigns because they don’t effectively align their ads,   their products, the online experience and their data.

A lot of customers click on the PPC ad, but few purchase or convert to a customer. While it’s not realistic to expect 100% of visitors to convert, there is a required amount of conversions necessary if the investment is to pay off. This now becomes a (potentially delicate) balance between the cost of sending a visitor to the site and the rate at which they convert. The following is an example of how two very different businesses can analyze the potential profits or loss from running a PPC campaign taking into account the balance of cost and conversion rate.

 

 

Shore Sunglasses is a popular retail sunglass chain looking to get into online advertising. To determine the possible scenarios, they used the following chart. On the x-axis (top horizontal) are potential cost per click values for their ads, anywhere from $0.50 per click to $0.95. On the y-axis (left side vertical) are potential conversion rates (the rate at which someone buys sunglasses online). These range anywhere from 0.50% (one half of 1%) to 3%. In the bottom yellow box, they enter their ad budget followed by the retail price of their product ($150) and the profit margin they obtain from selling the product ($75). In this case, they are willing to spend $1000 to advertise $150 sunglasses that produce $75 in profits.

 

By entering these amounts, the spreadsheet identifies the conversion % needed to break even (purple) or turn a profit (green), and how much profit they can expect on the $1000 investment. As is expected, the higher rate for which the website converts, the more money can be made-likewise for a lower cost-per-click. However if the website fails to convert at a high enough rate, they’ll have very little tolerance for the expense of each click before the campaign is losing money (red). As it so happens, their website converts at 2% (considered the average for ecommerce). As long as Shore Sunglasses maintains a cost-per-click below $1.50, their PPC campaign will turn a profit. By continuing to work at lowering their CPC while achieving an even higher conversion rate, their campaign stands to pay back even more.

B2B businesses can run a similar exercise to determine potential profitability of a PPC campaign. Lyons Manufacturing is a contract manufacturing firm. Their industry is considered highly competitive in the online space, but projects are large enough in size to make PPC a potentially worthy endeavor. The sales process starts with either a phone call or online contact form submission. From there, a member of their sales team will follow up on the lead. A well configured website and analytics implementation allows for phone calls and contact form submissions to be attributed with the Google Adwords and Microsoft ad Center (Bing) campaigns.

 

Because of the competitive nature, cost-per-clicks in Lyons’ industry can run upwards of $10. The lowest price for a project they’ll accept is $10,000 at a 40% margin, so the rate they close leads can be much lower than the sunglass example yet still turn a profit.

Using this information, Lyons Manufacturing now has a clear understanding of what it has to achieve from its sales process at various cost-per-click levels in order to maintain a profitable campaign.

 

 

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