Without a doubt every business owner starts an advertising campaign with the goal of generating sales. However, you should be careful about making sales your only measure of success. Making short term advertising decisions based on sales (only) might be detrimental to the long term growth of your business.
Success stories on the web about pay per click advertising are about as common as spam for diet pills and natural male enhancement. To business owners new to paid search marketing and cruising the web to learn more, 30% conversion rates appear to be the norm. As a result, many business owners have unrealistic expectations for PPC advertising before they set up their first campaign.
The reality is that very few PPC advertisers see double digit conversion rates and many “business owners” bragging about them online are actually PPC advertising professionals fishing for new clients! While double digit conversion rates DO happen and you should shoot for them, don’t be too quick to cancel your PPC campaign when your conversion rate is a big fat 0%!
That’s right – I said it. A 0% conversion rate can be okay and it doesn’t (necessarily) mean paid search advertising won’t work for you.
Let’s look at a real life example –
While meeting with a group of business owners to talk marketing, I met “Fred” (names have been changed to protect the innocent). Fred said that he tried Google’s AdWords program as a way to generate sales, but after just 4 months he decided to put an end to it citing costly clicks and no conversions.
I asked Fred if he would give us some details and he obliged:
Four months, 400 visitors
$4,000 spent – avg. $10 per click
He mentioned $10 per click a number of times in a “can you believe it” sort of way – as if implying that to pay $10 for a single click was simply insane.
Intrigued, I asked him to give us the basic economics of his business. Again, he agreed:
Avg. revenue from a new client – $40,000
Avg. profit margin – 20% – $8,000 profit on an average project
He didn’t know what his lead to sale conversion rate was, but he suspected that it was high
After hearing the numbers, I couldn’t help but wonder why he had canceled his account after only four months.
To Cancel Your Account, or Break Even: That Is the Question
If an average new customer is worth ~$8,000 and he was paying about $1,000 per month for the advertising, he could have continued to advertise for four more months and if he had gotten just one sale the campaign would have paid for itself.
I mentioned this to him and he nearly screamed at me, “ARE YOU CRAZY! I’m not advertising to break even, I’m trying to grow and put some of my excess capacity to work!” Besides, he argued, if he hadn’t gotten one sale in fourmonths what were the chances that he’d get one in another four? I told him that I didn’t know, but that if it were me, I would have spent another $4,000 to find out. In the current scenario, we’d never know and to me this is the worst feeling you can have after an advertising campaign – not knowing what might have happened, not knowing what you should do differently the next time around, etc.
He countered that he’d just continue to rely on referrals – his number one source of new business in the past. I quickly responded that if referrals from existing clients were so common and truly his number one source of new business, then he’d really be crazy not to spend the additional $4,000 to keep advertising on AdWords.
At this point, I really thought he might strangle me so I started to explain myself.
Online Advertising Is Both Measurable and Highly Trackable
You can see what keywords, ads and even campaigns are being clicked on as well as what is converting and what is not, then optimize the account. I asked Fred if he was tracking the phone calls that might have originated from his AdWords clicks. He hadn’t been. So was a chance that one of the calls he got over the previous four months WAS from an AdWords-driven visitor? He said that his sales people asked every caller how they had found him and not one said an AdWords ad.
Be that as it may, I explained to him that:
most people don’t know the difference between a paid ad, an organic ad and everything in between and
people often cite “website” as how they found you and many sales reps don’t think to ask the prospect/caller how they found and reached the website
Next, I asked Fred what percent of the visitors that came from his AdWords clicks had been “high-quality” visitors. He looked at me like I was speaking a foreign language. “How the heck would I figure that out?” he asked. Using web analytics and comparing the visitors from your PPC campaign to visitors from other sources, I said. A blank stare took up residence on his face.
He didn’t have a website analytics tool like Google Analytics to track his AdWords campaign. While phone analytics might be a bit nitpicky, website analytics is a NECESSITY. It is impossible to run a well-managed PPC campaign without web analytics.
By comparing the visitors driven by paid clicks versus other traffic sources, Fred could have quickly determined what percentage of his Google clicks came from high-quality, well-targeted visitors. For the purposes of this post, let’s assume that 50% of Fred’s PPC generated visitors were high-quality visits (recognizing that a well-managed PPC account might have a much higher percentage than this).
Because Fred had not accurately measured and tracked his PPC campaign, he truly was gambling with his marketing dollars and maybe he shouldn’t have run the campaign in the first place. However, with the right tools in place, I argued that there is no reason that he should not have continued to advertise on AdWords – even at $10 per click.
If one new customer generates $8,000 in profit for Fred and he wants to increase growth, I argued that he should be willing to pay somewhere in the ballpark of $8,000 to acquire a new customer. Fred already acknowledged that existing customers are his number one source of new business via the referrals hey give, so if Fred wants to grow, he should continue to provide great service to as many new customers as he can handle – knowing that they will then refer another new customer to him (a new customer that has cost him nothing above the cost to acquire the initial referring customer). Obviously, if Fred is nearing full capacity, our analysis and what he might pay for a new customer would be different.
PPC Advertising Is Only As Good As Your Worst Sales Rep
So, if Fred had let his AdWords campaign run for a full 8 months, he’d only need one sale (a conversion rate of less than 1%) to break even and breaking even would almost certainly put him ahead when you factor in the referrals AND based on a 50% rate of “high-quality visitors”, he would also have 400 new (quality) visitors now more familiar with his product/service. That’s a tremendous value!!
Okay, okay, I can feel you judging me.
You MBAs and bean counters out there, don’t get all worked up. I think you get the gist of what I’m trying to say. People advertise all the time with traditional media outlets like cable, print, etc. despite no sales proof related to their ads.
But for some reason, pay per click and online advertising in general, get held to a different standard. Why? Because PPC and online ads are easier to measure and track? If more advertisers actually measured their traditional advertising (and it is possible contrary to popular belief), many would be ecstatic at getting 400 quality visitors to their website for just $8,000.
Additionally, with analytics – web and phone, Fred might have realized that he was paying money to send leads to a sales rep that can’t close. I asked him what his conversion rate is for his website as a whole. He didn’t know. You can send all the targeted traffic in the world to a website, but if the website can’t close it would be like generating leads via direct mail and sending them to a phone sales rep that is on a permanent vacation!
Rules for Evaluating Your Pay Per Click Campaigns
Track your results using web analytics and phone analytics (if you get phone leads)
Think of your website as a sales rep, not a brochure – how effective is your sales rep as a closer?
Think about how much you are willing to pay for a new customer
What other measures of success are there in addition to conversions (sales, leads, etc.)
Find Out How PPC Can Benefit You
What’s your take on the value of getting a new qualified visitor to your website? If you’re looking for more qualified website visits (which means more leads and sales!), contact us and we will help you create a cost-effective pay per click campaign.