Tuesday, July 1, 2008

Pay Per Click Advertising: How to Measure Your Investment

I receive many questions on a daily basis about pay-per-click advertising. How much should I spend? How should I calculate my return on investment? Although PPC seems like a complicated subject, its actually quite simple. Based on a recent article by eZanga CEO Rick Kahn, there are a few "rules of thumb" you can follow...

A good rule of thumb is to multiply the number of clicks usually needed to generate a conversion by three. So, if it normally takes you 50 clicks to generate a conversion, and you have received 150 clicks without any conversions, blocking that traffic source is a safe bet. Once you have removed traffic sources that don't work for you, you can move onto keyword optimizations.

Keep in mind that the end goal is to know what sources of traffic and keywords convert well, while recognizing the ones that do not. Once that data is established, decisions can be made and optimization is easy and should not take much time, depending on the number of keywords you are using.

Let's say, for example, you are targeting a $10 cost per acquisition (CPA) conversion, yet you are really spending $15 per conversion. You can test by decreasing the CPC on certain keywords to see if you fall in line with your targeted CPA. Sometimes this will help. But if you stop getting traffic from sources that were converting by lowering the PPC, you can hurt the performance. Again, you will have to test to see how it reacts on your campaign.

When you see some keywords that are converting for your campaign at $5, increase the CPC on those keywords to see if you can get more clicks by being more competitive. You may also have some words that after a few hundred clicks are converting above your targeted $10 CPA. For those words, try decreasing the CPC and see how that affects your campaign. After testing this data for a short time, if you don't see any improvement or it gets worse, you might think about removing those keywords because they just are not converting well enough for your targeted CPA.

You can also use the theory of dollar cost averaging here. It is okay to pay more per conversion on some words and less on others in order to get the volume that you need, as long as the overall campaign is reaching your goal.

Overall, always aim for optimizing your campaign. In the end, just make sure you know your customer, and don't forget — you get what you pay for, so don't aim too low on your bids. Remember, the ultimate goal is profit. You don't pay your bills with your margin, you pay them with profit. At times it is better to reduce your margin in order to gain more traffic and in the end more profit.

Bid a fair price for your ads and keep it simple. The result will be targeted leads that generate a positive return on your investment.


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