Pay per click programs, such as Google’s Ads (Google Ads) are becoming increasingly popular. And why shouldn’t they? They give small businesses the opportunity to advertise on the same medium as the big boys. They create a level playing field where your success is down to your effort & not the size of your budget.
PPC is not an easy way to make money though; because of the low barrier to entry, there is a lot of competition and to make a profit you need to test and hone your campaigns for maximum effect. This post offers a guide to understanding your PPC metrics and using them to build a more profitable campaign.
Start by learning what your metrics mean and then use that information to save money and make more sales!
Google Ads Prerequisites
You will probably already have a long list of targeted keywords in your campaign, all pointing to a number of ads (maybe just the one) which point to one or more landing pages, where you will then try to make a sale, or gain a lead, whatever it is your site does.
Set Up Conversion Tracking!
Hopefully, you also have conversion tracking set up… But if not, do so before you worry about any other metrics. Google makes it fairly easy to so you don’t really have any excuses!
The beauty of the integrated conversion stats within Google Ads is that it links all data to the actual campaign, so you can get individual conversion data for every single keyword. That means that if you have a phrase such as “skateboards” you can see exactly how many times someone has searched for that phrase and then clicked your ad, and you can also see how many of those clicks then turn into sales.
Needless to say: The higher the conversion rate the better
Cost Per Conversion
Next, you need to work-out your “cost per conversion”. This is easy enough, you are given the average cost per click (CPC) for each key phrase:
If your conversion rate is 2% for a given keyword that means that you are paying for 100 clicks for every 2 sales… 100 clicks cost 100 times your CPC for that phrase…
So your cost per conversion is 100 x CPC / 2…. Or…
Cost of conversion for any given phrase is 100xCPC/conversion rate.
Using That Data
Once you have enough data to make this reliable (ie. once your campaign has had enough clicks for each of your key phrases) you can work out a cost per sale for every keyword that you are using (if any keywords have yet to make a sale then the cost per conversion is infinite).
What is each sale worth?
Next, you need to work out what a sale or a conversion is worth to you. For e-commerce websites this metric will be pretty easy; you just need an estimate of a customer’s lifetime value.
How much profit will you make from that customer in the next ‘x’ months? The better you are at looking after customers the higher this figure will be.
Over Or Under Estimating
If you are conservative with this figure you will end up with lower sales figures, but a higher profit margin. If you are less conservative your margins will be slimmer, but you may end up making a more actual profit. How conservative you want to be is entirely up to you.
You may just work on the profit value of the first sale if you’re not sure how much repeat custom you get. Being conservative also means you are less vulnerable to changes in the market, as you are not relying as much on future sales to make up your profit.
What About Lead generation?
If you are trying to gain leads or sign-ups then it is slightly more difficult to work out a conversion value. Essentially though, you still need to do the same thing; it may just be a little harder to come up with a figure.
You will need to estimate what portion of leads become customers and adjust the value of a customer accordingly. Or if you use sign-ups then you will need to gauge how often a reader becomes a customer.
Profit Per Sale, Cost Per Sale… What Next?
Now that you have a cost-per-conversion for each keyword and an estimate of how much profit each conversion brings you, you can simply drop the keywords which are costing more than they are bringing you in profit.
Maybe each conversion is worth $25 to you. If the keyword “skateboards” is showing a cost per conversion of $32 then it is not a profitable keyword.
For instance 2:
The keyword “skateboard shops” on the other hand, might only show a cost per conversion of $19, in which case that is a nice profitable keyword, and one you will want to keep.
You can see how powerful this technique is. Think about it, if you were selling skateboards then you would obviously think that using the keyword “skateboards” would be a must, but in our example here, it would turn out that “skateboards” is a loss-making keyword.
Don’t Rush In!
Obviously, other factors apply here: If your conversion rates are low across the board then it may be that your site that needs work. It may be best to pause unprofitable keywords, but actually improving your site might make previously unprofitable keywords profitable.
Additionally, you need a good number of sales before any data can be called reliable. So if you have any borderline key phrases, leave them to collect more data (unless you are losing more money thank you can afford on them!)
Sort out your site first
Before you even start with Google Ads you need to make sure your site is working and easy to use. You also need to ensure that your ad is targeted properly towards your customers.
If you can’t find any keywords that make a decent profit then it could be that your niche is not suited for Google Ads, but it is more likely that your website is just not good enough at converting.
Fortunately, this exercise will at least let you know there is a problem so that you don’t keep wasting money on loss-making Ads.
Only pause keywords once they have had at least a couple of hundred clicks and a handful of conversions; before this figure is reached you can’t really be sure of how reliable it is. The longer you collect data for the more accurate the results will be.
Borderline Keywords & Data
If a keyword is borderline (eg, the cost per conversion is $34 and the value is only $32) make a judgment call as to whether you should collect more data before pausing that keyword.
You should regularly be testing your landing pages and sales pages too. Doing this will improve your overall conversion rates and could, therefore, make previously unprofitable keywords profitable. If you run a successful split test on your landing page, it may be worth un-pausing previously borderline keywords to see if they are now profitable.
Just Keep Measuring
Using these stats you can very easily see which keywords are the most profitable. Analyze them, see if you can use them to think of more keywords to add to your campaign, and then test those keywords too.
There are many ways that you can bring down your costs, by improving your ads or your website. But by using this method, you can pause the worst keywords so that you start making a profit quickly. As you build more data you can improve your campaign and website and then gradually unpause keywords.
The key is simple really: Just Keep Testing!Last modified: July 23, 2021