Pay Per Click Advertising: It’s All About the Conversions

By John Eberhard

With pay per click advertising, there are many things going on and many moving parts that you could put your attention on.

There are impressions (the number of people who saw your ad). There are clickthroughs (the number of people who clicked on the ad and came to your site). There is the clickthrough rate (CTR: the percentage of people who clicked on your ad compared to the total number of people who saw it).

There is the average cost per click (CPC: the total amount of money you spent in a given time period, divided by the total number of clickthroughs in that time period).

There are many other things you can look at. But the most important thing to consider in a pay per click advertising campaign is the conversions you are getting and the statistics related to the conversions.

First of all, a conversion is defined as a person who filled out a form or called you to become a lead or to directly buy a product online. If you are selling a product online, then a conversion is someone who bought it. If you are doing a lead generation campaign, usually for a high ticket item, then a conversion is someone who filled out the form or called you to become a lead. Often a lead generation campaign will include some kind of free offer such as a free report or white paper related to your product offering.

So the conversion is what we are all after. It is the Holy Grail of pay per click advertising. So the statistics we want to pay attention related to conversions are:

  1. Total conversions: We measure this week by week or month by month, compared to other similar time periods.
  2. Conversion Ratio: This is the percentage of conversions related to the total number of clickthroughs, or people who clicked on your ad and came to your site. So if 100 people clicked through to the site and 4 people filled out the form, that is a conversion ratio of 4%.
  3. Cost per Conversion: This means the total amount of money you spent on your pay per click advertising in a given period, divided by the total number of conversions in that time period.

I’ll discuss each one a little.

Total conversions: This is the total number of conversions (leads or sales) you get in a given time period, such as a week or a month. You can plan things out so you get the total number of leads or sales that you want or need.

Conversion Ratio: The higher the conversion ratio, the more leads or sales you get of course, and the lower your cost per conversion will be.

When you set up your campaign, you specify what page on your site the visitor is going to land on when they click on your ad on Google, which is cleverly called the “landing page.” The landing page is what determines your conversion ratio. If your landing page has the right elements on it (the right sales text, graphics and pictures, video or audio, etc.) then your conversion ratio will be good.

Conversely, if your conversion ratio is poor, look to your landing page and make adjustments to it to improve the conversion ratio. That of course begs the question as to what is a good or bad conversion ratio. I have read on various Internet marketing blogs and web sites that the national average for conversion ratios is 3%. So you can target that for your campaigns.

Cost per Conversion: I consider this perhaps the most important statistic of all. If you have a pay per click campaign and you have an acceptable cost per conversion, then you can (if you want to) ramp up your monthly budget, get more conversions, and you will make money.

The trick is to get an acceptable cost per conversion. This varies industry to industry and depends to a large degree on the cost of your product or service.

A problem you can run into on this is that if you are promoting to certain keywords where there is a lot of competition (other marketers also promoting to those keywords) then sometimes the bids for those keywords will be high. When this happens, it impacts your cost per conversion and makes it higher. One excellent trick you can use if this happens is to test different offers.

Here’s an example of how you can figure out what an acceptable cost per conversion is. Let’s say you are doing a lead generation campaign for a product that you sell for $3,000. You spend 14% of your gross income on promotion, so you can theoretically afford to spend $420 on promotion for each product sold.

But that doesn’t mean that you can afford to spend $420 on Google for each conversion. Because each conversion is only a lead, not a sale.

Now let’s say that your sales team closes an average of 30% of all leads. This again varies industry to industry and also sales person to sales person. But let’s say that is your average.

So let’s say you have 10 leads, and your sales team closes three of them. You can afford to have spent $1,260 in promo on those three sales (3 sales x $420). Now we take $1,260 and divide that by 10 (the number of leads we got). So that means your maximum cost per lead or cost per conversion that you can afford to spend is $126. And of course if you can bring that cost down lower than $126, you are making additional profit.

These figures will vary a lot depending on your industry, your product price, your sales team and so on. I have seen profitable costs per conversion of anywhere from $10 to $175. It’s important to figure this out because then you know whether your cost per conversion (and thus your whole Google pay per click campaign) is profitable or not.

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