Many of us are familiar with Google’s Adsense (“get paid for clicks”) program, especially in the blogging world. But Adsense’s sister site, Google Adwords is an equally useful tool that can help bring more revenue to your operation in a few simple steps. Over the past few weeks, I have had the pleasure of working with Adwords to promote my newest info product. I want to share with you in this post some of what I have learned by my own usage and through the help and insight of others.
Adwords Warning
Google Adwords is an extremely powerful yet surprisingly simple online advertising tool. But it’s ease of use can become unnecessarily costly if not used properly. This last point reminds me of a new line of treadmills recently delivered to my gym. These treadmills, like Adwords, have a simple interface to optimize and simplify use. When used incorrectly – with the simple click of a button – the treadmill will fly off at high speeds and potentially injure the user.
In the Adwords system, the greatest potential injury is overpaying for advertisements. This warning is especially important for the first-time user or during the early stages of any new advertising campaign. If the “Campaign Management” settings are too high (or too fast), you could end up paying hundreds even thousands of dollars on wasted advertising.
Understanding CPC
The most important thing to understand before using Google advertising is the term CPC or “cost per click.” The CPC feature of Adwords is what makes the system incredibly unique from virtually all other forms of getting the word out. Cost per click means you, the advertiser, will only pay for the ads that get clicked. In other words, you will only pay for those ads that work. In everyday advertising, this would be the equivalent of only paying when someone actually looked at and read your billboard.
Setting your maximum CPC for each assigned keyword is the key to avoiding overpaying for ad space. Before you can successfully advertise, you’ll need to establish a clear budget. Consider an example:
Let’s say you’re selling a product for $50 through your website. In this example, we’ll only focus on the most common expenses. You might have other costs to factor in, but this guide should offer a sense of how to prepare a usable budget. Suppose your only expenses for selling the product are 1) the per item merchant transaction fees (such as with Paypal or Clickbank and 2) the CPC advertising. Next, you’ll want to calculate the cost for selling each product. With Clickbank, the processing fees are usually at 7% per transaction. Here’s how things look so far:
$50.00 selling price
($3.50) less 7% merchant fee
At this point, you’re left with $46.50. But in order to sell this product, you need to drive traffic to your site. The question is, just how much traffic do you want everyday?
Adwords will allow you to set keyword bids as low as 1 cent per click. The reality is most clicks cost between 5 and 10 cents at bare minimum. These costs depend largely upon how much your keyword relates to your ad. Try thinking of your CPC charges in terms of “cost per hundred.” If you’re paying 5 cents per click, you will pay $5.00 to send 100 visitors to your site.
Breaking Even - What is your Conversion Rate?
The Cost per Hundred figure is useful because it helps you arrive at a conversion rate cost. Your conversion rate is how many visitors will actually click to buy. In the above example, let’s suppose your conversion rate is 1%. That means 1 of every 100 visitors on average will buy your product once delivered to your site.
With 1 of every 100 buying your product, you’ll need to buy 100 CPC ads to make one sell. A CPC of 5 cents will cost $5.00 per hundred – a CPC of 25 cents will cost $25.00 per hundred. If our example above holds true and we have $46.50 to work with before final profit, then we only need to adjust the cost per hundred to create a reasonable budget.
Some potential scenarios for selling one item at $50.00:
CPC $0.05 – Conversion Rate = 1%
$50.00 selling price
($3.50) less merchant fee
($5.00) less advertising per 100
$41.50 profit per book
CPC $0.25 – Conversion Rate = 1%
$50.00 selling price
($3.50) less merchant fee
($25.00) less advertising per 100
$21.50 profit per book
CPC $0.50 – Conversion Rate = 1%
$50.00 selling price
($3.50) less merchant fee
($50.00) less advertising per 100
($3.50) loss per book
As the last example illustrates, paying too much per click can result in a true loss. While 50 cents may seem like small change, over the course of 100 clicks it really adds up. We could, however, change the overall conversion rate to just one notch above at 2% and see a dramatic difference. At 2%, we only need to drive 50 visitors to the site to make 1 sale:
CPC $0.50 – Conversion Rate = 2%
$50.00 selling price
($3.50) less merchant fee
($25.00) less advertising per 50
($21.50) profit per book
It’s clear that even the smallest changes in Adwords are important. Take care when adjusting settings. More importantly, spend time and be patient with the system. If used properly, Adwords and other CPC ad systems can bring great results!
Tags: google adwords | business | advertising
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