How To Start Your PPC Campaign Off On The Right Foot.

I believe that most people fail at Paid Advertising not because they are stupid, but rather they start off their campaign focusing on the completely wrong thing.

Most people start a campaign around a certain traffic source (Adwords, Facebook, Youtube). This can quickly lead you down a rabbit hole of fail.

Instead, you should shape your campaign around your niche and what you are selling. By doing this, you can estimate how much you can afford to pay per visitor (normally called Cost Per Click or CPC). Once you have an idea of your ideal CPC, you then shop around for traffic sources that fit your CPC goal.

How do you calculate your CPC? Here?s the Formula:

(Gross Revenue Per Sale/Lead) * (Estimated Conversion Rate) = Your MAX CPC

I hope that you know your Gross Revenue Per Sale/Lead, but how do you estimate your Conversion Rate?

Generally, a well built campaign has between a 5-10% conversion rate. It also depends greatly on how you monetize. If you are selling a $2,000 elliptical, then shooting for a 5-10% conversion rate is a little optimistic. 1-2% is probably more realistic. If you are getting visitors to submit their email for a free ipad, then you can easily break a 10% conversion rate. A well built email submit can easily convert at 25%.

Here are average conversion rates by industry for Google Search and Display (scroll down past the infograph): http://www.wordstream.com/blog/ws/2012/10/29/average-google-adwords-conversion-rates-by-industry

Note: I suggest you follow the conversion rates for Google Display for other forms of Display advertising.

I?d recommend to start a campaign on the conservative side, as you can always get more aggressive once you determine your actual conversion rate. I suggest using a 2-5% conversion rate for the formula.

Here?s an example:

I am selling Ugg Boots and my average sale is $200. My Gross Revenue is $150. The average conversion rate for the Shopping Industry for Google Search is: 3.58% and for Google Display is: 2.19%. I want to start of very conservative, so i?m going to expect a 2% conversion rate. Time to plug in the formula:

$150 * 2% = $3. So I can afford to pay a maximum of $3 per click to breakeven at a 2% conversion rate.

After a look at Google?s Keyword Tool, we can expect to pay between $1-1.50 for Google Search, and probably less for Google Display. Now you may wonder why everyone else is bidding $1-$1.50 when we can afford $3 per click. That?s because most of the bidders are probably retailers who do not have a Gross Revenue of $150 for $200 Ugg Boots. In fact, we can probably reverse engineer how much their Gross Revenue is with this formula:

(Cost Per Click)/(Estimated Conversion Rate) = Gross Revenue. ($1.50 CPC)/(3% Conversion Rate) = $50. A Gross Revenue of $50 for a retailer selling $200 Ugg Boots sounds very realistic to me.

Now what if Google?s Keyword tool told us that we could expect to pay $5-7 per click. Well then we know that Google Search probably isn?t the right traffic source for our campaign. By quickly calculating our Max CPC, we saved ourselves a bunch of money by not ignorantly jumping into Google Search. Having said that, Google?s Keyword Tool is often inaccurate and almost always incomplete, meaning it shows only a fraction of the keywords in a niche.. Even if the Keyword tool showed a $5-7 CPC, I would still setup Search & Display campaigns. Why? Because I will set my max CPC to $3. What?s the worst that can happen? I get zero volume at $3 because everyone else is outbidding me. Zero Volume = We didn?t lose any money.

To sum this post up nicely, you want to start off your paid advertising campaign informed of how much you can afford to pay per visitor. If instead you start off your campaign ignorantly, you can quickly find yourself bidding on $5 clicks when you can only afford $3. You might as well burn your money for heat.

Cheers,

Nick Kneuper

TLDR: Minimize Risk. Maximize Potential. Know your CPC before you PPC.

Great insights, thanks a lot. Great formula there.

Great post!!

Thanks a lot guys!

Great thread ! Respect !

Great post.

thanks for the advice

this information is like gold, thanks a ton for the share.

Any insight on how to advertise an email submit through adwords, as I was under the impression this is not allowed through Google?

Thanks

savaloi said:

Any insight on how to advertise an email submit through adwords, as I was under the impression this is not allowed through Google?

Thanks

Click to expand...

Yeah Google isn't cool with this. You could try to sneak it past them, but it's not worth it in the long run.

Very good informative post! I enjoyed the read thanks!

I'm glad somebody is talking about PPC once. I'd love to hear more tips on that as I am planing to focus my energy and money in there in the new year.

It's really great to hear other peoples tips, so much easier to learn from each other! I always like to use EntroPay to help me budget properly as well! Virtual credit cards that are prepaid make it so much easier, but this post gives a great insight in to working out what you can afford.

Thanks!

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I know this is an old thread, so sorry for bumping it. Hope I don't piss anybody off.

My question relates to real world examples where this formula doesn't seem to work. Or at least, I'm wandering how these guys manage to beat the formula that I think makes perfect sense.

Ok, I'm looking at Keyword Planner in a niche I'm considering. Let's say it's "Best Diet Pills" and Planner's estimated CPC is > $15.00. You know it's going to be more, but let's assume that Planner is spot-on.

Now, the top ranking ad leads to an affiliate page that "ranks" the top 10 diet pills. It has a bit of content on it(5 articles or so) and MOZ, AHrefs have no info on the backlinks or anything else as far as this site is concerned. It ranks nowhere else for that keyword, so his organic traffic is ZERO.

Looking at the payouts for all 10 affiliates, the absolute best this guy can do is $100.00 per sale.

I know that Adwords conversion rate is around 5% so for every 100 clicks, he makes an average of 5 sales which equals $500.00 in a best-case scenario. That's what doesn't make sense.

He's spending $1500.00 to make $500.00 in sales and I've been watching it now for a couple of months.

I find stuff like this constantly. I'm in the clothing niche and I know that the markup is around 15% on a $20.00 item, yet these guys are at $4.00 CPC.

How?

You answered your own question really. Who says that this particular guys conversion is 5%? Maybe it is 20% or more (not unseen).

On the other hand, without knowing offers he has on his site, does he receive his commission after re-bills as well?

You are also missing a different angle, that perhaps this guys is using BH tactics to drive traffic to his site and then paying for PPC to fool the advertisers. Everything is possible.