by John Eberhard
It’s tempting to think that any business would be right for doing pay per click advertising (PPC) on Google AdWords, Yahoo Search Marketing, MSN Ad Center or Facebook. It would be nice if it were so. But this is not the case. Some businesses get great results with PPC, but some do poorly. Here is a summary of a couple of factors that determine which types of businesses will do well.
a. High Ticket Items: Generally, high ticket items do much better with PPC campaigns than low ticket items. By low ticket items I mean anything below let’s say $200. The reason for this is that there is a fair amount of competition from other advertisers on Google AdWords and the other providers these days. Since the amount you pay for each person who clicks on your ad is driven by bids, more competition means higher cost per click.
Let’s say for instance that you have to pay $1.00 for every person who clicks on your ad. And let’s say you are selling an item on your website for $100. Not every person who clicks on your ad and comes to your website is going to buy the product. The percentage of people who come to your site who end up buying the product is called the conversion ratio. A typical conversion ratio for selling products directly on a website these days is anywhere from 0.5% to 3%. A 0.5% conversion ratio means that for every 200 people who come to your site, one will buy.
So if you were paying $1.00 for each person who clicked on your ad, then your cost for getting 200 people to the site via PPC would be $200. So now you get one sale out of those 200 people. Now let’s say your profit margin for that $100 product you’re selling is $50. You just spent $200 (which is in this case your cost per sale) but only made $50. So under this scenario you would lose money on every sale. Not a good business model.
The cost per click that you will end up paying varies quite a bit for various products, but $1.00 is not unusual (sometimes it’s less). So if you are selling CDs, books, or other low ticket items online, then PPC is definitely not the right route for you. There are other avenues such as blogging that will be much more cost effective.
But now let’s take a situation where you are selling a consulting service and the average sale is $3,000. Or let’s say you are a home improvement company and your average project is valued at $5,000. You can use a PPC campaign to generate leads, getting people to fill out a form for more information or to get some free item (like a free report) you are giving away that relates to your product or service.
In that case you can afford to do pay per click, because your sale amount and profit margin are higher. In a lead generation campaign the important factors at the end of the day are: how many leads you’re getting, and what is your cost per lead? Typically, depending on the industry and how many competitors there are in the geographical area in which you’re advertising, you can figure that your cost per lead will be anywhere from $10 up to $150. The most common is between $50 and $100. I know that’s broad, but it really does vary widely and depend on your industry and competition.
Budget: One aspect of all the pay per click programs is that you can set a daily budget, and thus a monthly budget to control how much money you spend. This may seem strange, but I have observed that campaigns with a budget of less than $500 per month are almost uniformly unsuccessful. Campaigns with budgets of over $1,000, when all other factors are done correctly, are nearly uniformly successful. This may have something to do with a low budget not being high enough to get enough momentum going. But whatever the reason, I have observed this on many occasions. For this reason I usually will no longer take on managing a PPC campaign with a monthly budget below $1,000.
If your company and your products or services are a good fit, pay per click advertising can be a great source for leads and sales.