How Much Should You Pay for a Click
You have a web site ready for action. Your product catalog, order tracking, credit card payment system, and fulfillment process are all in place. Now all you need is traffic! Many web entrepreneurs have learned that the magic nut to crack is attraction: get a steady flow of customers who explore your site and eventually purchase goods. The overhead costs of most web businesses are minimal relative to brick and mortar stores. However, the variable marketing costs can over shadow sales revenues by orders of magnitudes. Unfortunately, unlike the saying in the movie Field of Dreams, "If you build it, they will not come!" Luckily, the industry has learned this lesson; some the hard way, and others in spite of the losers. Dot-coms are clearly not the darlings of the capital markets any longer; however, there is still money to be made! If you plan to start a web business or already have one but are not sure how to increase traffic and make money at the same time, you should consider a science-driven approach. What does that mean? Read on How to Lose $500 in 12 Hours
One weekend, my business partner and I created an affiliate commerce site. The site comprised a list of links to other online retailers. People go to our site, pick a link to a jewelry store for example, buy something, and in turn we receive a commission from the sale. The process of creating the site, signing up the affiliate agreements, and turning it on was a cinch. The cost was virtually nothing. We, being new to this whole web business concept, thought we had an incredibly smart marketing idea: pay to have our site come up in an ad box on a major search engine (Google) every time someone searched on the word "gifts". The word gifts is searched for 49,000 times per day! We figured we would have a good flow of visitors and the money would start rolling in. For certain, we would at least break even. We sunk $500 in one day and let it rip. Here's what happened:
Our investment in Google - $ 500
Number of times our ad was displayed (impressions) - 36,964
Number of times people actually clicked on our ad when they saw it (click-throughs) - 429
Number of times a person visiting our site made a purchase - 10
Our total sales revenue - $ 77
Our total gross profit - $ (428)
The whole process took less than 12 hours. At least we learned a lesson quickly at a relatively low cost. Let's look at this event from a slightly different perspective, putting the costs in terms of number of visitors:
Our investment in Google - $ 500
Number of times our ad was displayed (impressions) - 36,964
Number of times people actually clicked on our ad when they saw it (click-throughs) - 429
Ad cost per visitor - $ 1.17
Number of times a person visiting our site made a purchase - 10
Average sale per purchase - $ 7.70
Average revenue per visitor - $ 0.18
Average gross profit per visitor - $ (0.99)
We were basically giving $1 away for each visitor that came to the site. Not a winning business model. However, taking this information, we can assess which marketing techniques can work best for the business. Let's add 2 additional critical data points to our table:
Our investment in Google - $ 500
Number of times our ad was displayed (impressions)- 36,964
Number of times people actually clicked on our ad when they saw it (click-throughs) - 429
Percentage people who clicked on our ad (click-through rate)- % 1.16
Ad cost per visitor - $ 1.17
Number of times a person visiting our site made a purchase - 10
Percentage of visitors who purchased something (conversion rate)-% 2.3
Average sale per purchase- $ 7.70
Average revenue per visitor- $ 0.18
Average gross profit per visitor- $ (0.99)
Running the Numbers
Putting this all together, you can create a formula for estimating the gross margin per visitor for a specific marketing campaign:
Average Gross Margin per Visitor = Average revenue per visitor - Advertising Cost per Visitor
Advertising Cost per Visitor = Campaign Costs /(Impressions x Click-through rate)
Average revenue per visitor = Conversion rate x Average sale per purchase
Putting it together:
Average Gross Margin per Visitor = (Conversion rate x Average sale per purchase) (Campaign Costs / Impressions x Click-through rate)
Using our Google example, the average gross margin per visitor would be calculated as:
Average Gross Margin per Visitor = (0.023 x $ 7.7) - $500 / (36,964 x 016) = (0.99)
Remember, this formula can only be used for a single type of campaign. Depending upon your target audience and the type of campaign, all of the above variables can change. When we launched our Google campaign, we used impression-based advertising, that is, we paid Google a certain amount of money for every 1,000 impressions of our ad (about $15 per 1,000 impressions in our example). However, just because our ad was displayed inside someone's browser did not mean they would click on the ad itself.
Enter pay-per-click advertising. This advertising model allows you to pay for an ad only when a person actually clicks on it. In this model, you are guaranteed to get visitors. However, the cost per click is usually much higher. Let us assume we ran our same Google campaign except we used pay-per-click advertising. Pay-per-click also factors in position which will drive the amount you pay per click (the higher the ad position on the screen, the higher the price per click will be). Let's say we pay google $0.50 per click and based on Google's traffic for the word gifts, we receive 170 clicks per day (or visitors), or in total 1000 visitors over the life of the campaign (we still only put in $500, so $500/$0.50 = 1000). Using our same ratios, let us re-compute our Average Gross Margin per Visitor, modifying our formula slightly (notice the formula is simpler):
Average Gross Margin per Visitor = (Conversion rate x Average sale per purchase) (Campaign Costs / Visitors)
Plugging in the numbers:
Average Gross Margin per Visitors = (.023 x $ 7.7) - ($500 / 1000) = (0.32)
If we used a pay-per-click advertising model, we could have saved $100. Either way, we would have lost money, but imagine if we had started with $5,000 instead of $500. The nice feature of pay-per-click is that you know ahead of time how many visitors you will receive. If you know your conversion rate and your average sale, you can modify the formula to determine the most you should pay for a pay-per-click campaign:
Max Pay-per-click = (Conversion rate x Average Sale per purchase)
In our Google example, our maximum pay-per-click should be $0.18. For every penny we pay less than our maximum pay-per-click, we're making money! Unfortunately, as of this writing, the minimum pay-per-click cost for the word "gifts" on Google is $0.37. The ultimate lesson is that for this particular site, the Google marketing campaign will not generate sales revenues. But is that really true? We could increase our conversion rate and our average sale per purchase. We could increase our conversion rate by optimizing the design of the web pages. We could increase our average sale per purchase by entering affiliate agreements that offer higher commissions. Let's say we used the $0.37 pay-per- click model on Google for our gift site. In order to make money we would have to get our average revenue per visitor to at least $0.38. If we just focused on our conversion rate, we would need to increase the percentage of visitors who make a purchase to 4.9%. If we left conversion rate alone, we would need to increase the average sale per purchase to $16.50. Alternatively, we could try and increase them both.
Not All Ad Models Are Created Equal
Using the same model, let's look at a different type of campaign: newsletter advertising. This form of advertising involves placing an ad embedded in a newsletter that is distributed to a subscriber base via email. The model for calculating average gross margin per visitor is exactly the same as impression based, except your target market is different. For example, let us say we spend $1,000 to place an ad in an email newsletter about shopping tips. And let's say the newsletter reaches 500,000 subscribers. If we used the same click-through rates and conversion rates, our average gross margin per visitor would be:
Average Gross Margin per Visitor = (.023 x $ 7.7) $1000 / (500,000 x 0116) = $0.004
We're making money!! (not much, but the margin is positive). Translation: this campaign brings us under a half a penny per visitor. Another helpful ratio is to calculate the return on your advertising dollar:
Return of Advertising = [(Impressions x Click-through rate x Conversion rate x Average sale per purchase) Campaign Cost] / Campaign Cost
Or in our case:
Return of Advertising = [(500,000 x .0116 x .023 x $ 7.7) $1000] / $1000 = 2.7%. Translation: you're making 2.7 cents in gross revenue for every dollar of advertising you spend. Also keep in my mind that this newsletter reaches a different target audience. While people on Google may casually look for gifts, the recipients of a shopping newsletter may have a higher tendency to buy (i.e. your conversion rate may be higher). If your conversion rate were higher, let's say 3%, your new average gross margin per visitor becomes $0.05!! or a 34% return on our dollar.
The Bottom Line
Using formulas to compute the success of marketing plans is extremely helpful and reduces the risk of throwing away precious advertising dollars. However, understand that each marketing campaign will differ based on cost per click, conversion rates, target audience, and average sales per purchase. I encourage you to track all the data available about your marketing campaigns so you can realize profits instead of losses.
Marketing on the web can be difficult. Predicting the behavior of surfers is an art unto itself. Before you begin spending a lot of money on advertising, experiment with different types of campaigns, track all of the results, and make future marketing decisions based on real customer behavior. Also keep in mind that there are other, free forms of advertising. Writing articles, participating in newsgroups, print advertising, and email marketing are other examples. Remember that all of these marketing techniques will have different click-through rates, conversion rates, and revenues per visitor. How To Screen Your Visitors When Using Pay Per Click Advertising
If you are using pay per click advertising, I don't need to tell you that it can get very expensive if you have a lot of unnecessary click throughs. In this article I will explain how to screen your visitors and how to apply it to your pay per click advertising campaign, so that you can screen your visitors before they click through.
How It Works
To minimize the amount of unnecessary click throughs, we are going to talk about a screening technique that is used in copywriting. A good copywriter has the ablity to screen the serious individuals from the test pilots, before the sale is initially made.
By using this screening technique you will dramatically decrease the amount of refunds that you could be receiving. In this case, you need to be specific about your product or service without giving too many details, this will eliminate unnecessary click throughs.
When it comes time to develop an ad that best describes your offer, you need to use precise wording. If you use any ambiguous words, phrases or statements in your ads, you will confuse the viewer, making them either click through or leave. You need to keep in mind that every click through is costing you money, so you need to make sure that you are targeting your market and that each of your visitors are qualified.
Applying The Headline
When placing a pay per click advertisement there are two things that you need to pay attention to, the headline and the description. The headline is used to grab their attention, build their curiousity and force them to read on. The difficult part is that the pay per click ads only allow you a limited amount of characters, usually up to 50. Your attention grabbing headline will end up being only three or four words. You need to make your headline jump out at the viewer, but at the same time, you need to be specific.
One of the biggest mistakes I often see, is that people use their business name for the headline of their pay per click advertisement. A business name is not going to grab their attention or motivate them to read the description. For example, let me ask you which headline would grab your attention and motivate you to read the description, "Elites Marketing" or "Earn $47 - $270 Per Sale". Do you see the difference between the two headlines and how specific the second one was?
Applying The Description
As far as the description goes, you have a little more to work with, unless you are using Google's Adwords. Google's Adwords gives you two lines and each line only allows up to 35 characters. You will need to be as specific and descriptive as you can. The description is very crucial, and it will determine whether or not your visitor will initially click through.
Let me give you another example, now which description is precise in wording and is descriptive enough to screen your visitor, "You can join our Two Tier Associate Program at no cost or obligation", or "Snowball in cash by promoting info-marketing products. Join for Free!" I hope you picked the second description!
The first description, "You can join our Two Tier Associate Program at no cost or obligation" is vague and wide open. This description does not describe what kind of product or service they would be promoting or kind of associate program I am offering is, pay per lead, pay per click, pay per sale, or two tier. You don't want to use a description that is too vague, that is how you get a lot of unnecessary click throughs.
On the other hand, the second description, "Snowball in cash by promoting marketing info-products. Join for Free!" is very clear and concise. Even though the description did not say what kind of associate program it was, in the headline it was clear. It said, "Earn $47 - $270 Per Sale." Moreover, I was able to tell my visitor that they'd be promoting information marketing products and was free to participate. I was also able to hit them with a couple psychological triggers, "Snowball" and "Cash".
To screen your visitors more effectively, you need to choose keywords that are relevant to your product or service and that target your market. If you select keywords or phrases that are too general, you will still have a lot of unnecessary click throughs. You can only screen so much, so don't select inappropriate keywords or phrases when starting your pay per click advertisement campaign. Take your time and brainstorm for the appropriate keywords and phrases that best desribes your product or service.
About The Author
Rich Hamilton, Jr is the CEO/President of (http://www.ElitesMarketing.com). You can start earning cash today by joining our FREE Two Tier Associate Program and make $45 - $270 per sale (http://www.ElitesMarketing.com/assoc/).
Not Sure If Your Online Advertisement is Working?
Without tracking, your online advertising is just a shot in the dark. Many new and seasoned marketing individuals spend significant dollars on banner advertisements, ezline ads, and other online media but do not know which ads have brought them the greatest success.
The following is a list of online advertising methods that you may or may not be using. It is important to track all of your online advertisement. This is the only way to determine which method works best for you and where you should spend your hard earned dollars.
· Site links
· Articles
· Ezine advertisement
· Banner ads
· Signatures Tag
· Forum postings
· Email marketing promotions
· FFA postings
· Free Classified listings
· Paid Classified listings
· Surveys
· Auto responder
· Pay-per-click listing
· Reciprocal link
How do you track your advertising? There are basically two ways of tracking your advertising; sign up for a service or purchase ad tracking software to install on your server.:
A service such as ezTrackZ (http://www.eztrackz.com) will manage all aspects of your tracking on their servers. This is a web-based tool that will allow you to quickly create your tracking links and report your results in real-time. Other examples of service based ad tracking are Hypertracker (www.hypertracker.com) and goToast (www.gotoast.com) Cost varies from $17 per month to $67 per year depending on which service you choose.
You can also purchase software such as AdTrackZ (http://www.adtrackz.com) to manage your own tracking. Software like AdTrackZ must be installed and managed on your server and is available for a one-time cost.
Which ever method you choose, start now and stop wasting valuable time and dollars on unsuccessful advertising.
Pay per click tracking
Like many businesses that advertise online you are probably spending a portion, if not your entire advertising budget on PPC (pay per click) advertising. The problem many businesses have is being able to determine the most profitable avenue to continue pursuing in their advertising methods.
How to determine the best avenue
Typically, businesses rely on the stats provided by the PPC companies, but usually this isn't good enough. Sure, if you only advertise in Google AdWords or Overture this method may be sufficient, but what if you advertise with more than one PPC company or you advertise on banners, email and pop-ups/pop-unders also?
The solution is tracking. The only way to know if one of your avenues is performing better than another is to track the users and determine where all the buyers/leads are coming from.
For example, say your candle company advertises in Google AdWords and on Overture for the key phrase "scented candle" and you receive, according to Google and Overture combined, 300 visitors, and from your own records 20 orders per day.
Without tracking the users at most you know that google gave you 120 visitors and Overture gave you 180 visitors (remember this is an example), the times that the users visited your website and of course that you received 20 orders for that day.
With tracking you would still know all of the above information, however you would also know even more vital information like that out of the 180 visitors that overture gave you, 18 of your 20 orders came from them. You would also know (depending on how detailed the tracking was) what pages they looked at and if they have previously visited your site, among many other things.
How to implement PPC tracking
The most common method of pay per click tracking is using a special URL in your ads.
For example: (http://www.yourwebsiteaddress.com/track.php?src=google&term=scented%20candle)
The special URL will allow you to determine the source of the click (in the example above, Google) and more importantly the term (in the example above, "Scented candle").
The software is most typically implemented in either PHP or Perl and stores the information about the user in MySQL or any of the other major databases. The most common information logged is date, time, IP address, session id, referrer, current page and their user agent.
Benefits of PPC tracking
Based on the above example of the candle business we were able to determine that the business was only generating 2 sales per day from Google, however it was generating 18 sales per day via Overture. Because we only generated two sales on Google we are able to determine if it is cost effective to continue advertising with google (e.g. generating a profit or losing money through advertising) or to take our advertising dollars elsewhere.
The primary benefits are:
- Save advertising money by advertising wiser.
- The ability to test the effectiveness of changes in your ad copy.
- Assist in your website layout (e.g. make it easier to navigate and purchase).
Conclusion
Tracking your advertising is beneficial to any business that advertises online, businesses that are big (Bank of America, Monster.com, Capital One, Progressive Auto Insurance) all do it and so do your competitors. Don't let your competition gain an advantage; start tracking your users today! If used right, you will be glad that you did!
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