One of the problems small businesses struggle with when they use Google AdWords and other forms of pay-per-click (PPC) advertising is the high per-click cost for keywords and phrases that are associated with what they sell. Although the actual price-per-click varies greatly by the product or service, the actual keywords selected, and the position of the ad, one estimate puts the average AdWords cost per click in 2012 at $.84 and the average cost per conversion (someone who makes a purchase) at $24.40.
That figure is an average across a wide range of industries, and in some industries, the cost-per-click fees are considerably higher. Try to buy the term,"criminal attorney," for instance, and you may have to pay $50 to $60 per-click to get into one of the top ad spots in Google search results for that term.
Because of the high prices, it's not unusual for small businesses to think that PPC advertising is unprofitable. It doesn't take a lot of math to see that if your own cost per conversion is $24.50 and all of the costs for the product you're selling total $26, you'd lose money on a $47.95 sale that resulted from a click on your ad.
The problem with that type of calculation, however, is that it assumes that you only sell one product, and that each customer who buys from you only buys once.
What small businesses forget when looking at the cost of their PPC ads, is that the way to benefit from advertising (in any form) isn't by selling one product one time to each customer. It's by winning the customer and getting repeat sales over a period of time. Those repeat sales may be additional purchases of the original product, or additional products you sell to the same customer.
Here's an example of how things can change when you look at the bigger picture:
We run AdWords campaigns for some products we sell, and we use tracking links as the links in the ads. So, occasionally, I'll look through shopping cart order for sales that don't carry a tracking link from our PPC campaigns and look back to see how we acquired those customers to begin with and what their history has been.
Generally I'll choose a just a few of those orders at random, and search our database to see if the companies have previously ordered from us. (We sell to businesses, so most orders have company names in them.) If they have, then I pull up all their past orders, add up the total dollar amount of their purchases, and look at how long they've been a customer. I also look at the first order they ever placed with us to see if it came in through a click on one of our ads. This helps me gain some perspective on the value of our ads long-term.
What I've found, is that many of our repeat-order customers first found our site by clicking on one of our AdWords ads. Furthermore, the lifetime value of our customers make the pay-per-click fees we incur to acquire them worthwhile.
I've also found that the individuals who place the orders sometimes change jobs, and if they're doing the same job at a different company, they place orders with us for their new employer. It's not unusual for their former employer to continue to order from us, too.
We know, too, that many of our repeat customers click on our ads, and then once they reach our website, they pick up the phone and call us to place an order. Those orders never show up with a referrer in our shopping cart, even though they happen because of a click on one of our PPC ads.
Reviewing sales in this way does not, of course, tell us the exact ROI for our pay-per-click ads. But it does show us how we continue to benefit from a click long after the initial visit and purchase. That information, along with other statistics we gather (such as the average dollar amount of shopping cart orders), helps us determine what we should spend on advertising.
The bottom line here: If you only have one product and can only sell that one product once to each customer, pay-per-click probably won't work for you unless the product or service commands a premium price. But if your customers come back to buy from you multiple times, you need to consider what the value of those repeat sales are to be able to make good decisions about how much to spend on pay-per-click and other advertising.
Copyright 2013 Janet Attard. All rights reserved.