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[How to] Calculate ROI/Profitability of Paid Traffic (e.g. PPC)

Discussion in 'Clickbank' started by mancar487, Nov 28, 2015.

  1. mancar487

    mancar487 Jr. VIP Jr. VIP

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    Intro:

    I've just been discussing this with an affiliate of mine and thought it'd be an interest to others; so I decided to do a quick post. It is about how to calculate ROI/profit from paid traffic (such as ppc) and how to estimate profitability of a product you are considering promoting. I'll also throw in some info about how to optimize ROI.

    Calculating ROI/Predicting profitability

    Let's say you are running a PPC campaign, where you are driving traffic to a squeeze page/landing page i.e. you are either collecting email leads and promoting to them through follow-ups or sending them to the vendor's page after warming them up with an article. After setting up your campaign, you see that you are spending on average $1.00 per visitor.

    Let's say that you are promoting product X. From Clickbank's marketplace, you see that the product has an average $ per sale of $25.5. Notice that $/sale on the marketplace takes into consideration the product's refund rate, so you will not need to add in extra calculations/assumptions for refunds; these are already factored in.

    As the product is paying an avg $/sale of $25.5, that means that you'd need a sale per 25.5 visitors to break even (25.5/1.00= ). At the break-even point, you are neither making a profit, nor suffering a loss. Anything better than will give you a profit.

    If the product is converting 10% (1 sale per 10 hops), that means that you'll get $25.5 per $10 spent.

    Profit = 25.5 10 = $15.5

    To predict profit of our investment, 15.5 /10 = 1.55

    1.55 would be what we can call our profit factor (PF)

    Or we can check growth of our investment: 25.5 /10 =2.55..we can call this our growth factor (GF)

    Using these factors, we can calculate that if we invest $1,000 into this campaign, the $1,000 will become (1000 x 2.55) = $2,500

    And that for every $1,000 we invest, we will end up with a net profit of ($1,000 x 1.55) = $1,550 (i.e. we have earned all our initial $1,000 back plus and ADDITIONAL $1,500).

    These calculations can be used to calculate returns on a campaign you are currently running, and also to estimate returns of a campaign you plan to run. For the latter, you can use average CPCs (eg from bing/adwords keyword planners) to estimate cost per visitor and you can use the vendor's average conversion rates (you need to ask the vendor) to estimate your conversion rate'however, do note that the conversion rate you will get can be significantly more or significantly less than the average rate (more on this in the next section).

    Optimizing Profit

    As you can see, profit is going to depend on:

    1. how much you spend ($ per lead/visit/click),
    2. how much you earn per sale (you?ll know this from the avg S/sale on the marketplace), and
    3. your conversion rate.


    Number 2. You cannot do anything about as this will depend on the price set by the vendor, the commission rate, and the refund rate. However, as the clickbank marketplace displays this, you will always have an accurate number. Of course, if you are a high volume affiliate, you may be able to negotiate with the vendor for a higher commission rate than the standard set.

    Number 1. You have control on by optimizing your ads in terms of the keywords and targeting you use. Avoid non-converting keywords (make use of negative keyword lists), continuously monitor your kws so you keep only those with the best conversion rates in relation to their bids, use ad groups to match ad title, description, and destination url's content with the keywords targeted, and know your demographics so you can target accordingly (e.g. promote English products only to English-speaking countries).

    Number 3 ' now this will depend both on the vendor and on yourself. The vendor's job is to have a high quality website with a killer copy. Have a good look at the vendor's site before you start promoting and see what you think. Would you buy the product if you yourself had the problem the product promises to solve? Get in touch with the vendor and ask about average conversion rates.
    Conversion rates will also depend on you both in terms of the people you are reaching (your targeting) and on your pre-selling. This is where having a good lander comes in.

    It is all About ROI!

    A lot of affiliates will focus on getting cheap clicks/visits. But, on its own, how much you spend is irrelevant. The returns on your investment is what counts. You can be getting cheap 10 cent clicks, but if you are only getting 1 sale per 300 clicks on a product that pays $25 per sale, than you?d be operating at a loss (get $25, but spend $30 a loss of $5 per sale).

    On the other hand if you are paying $1.00 per click, but getting 1 sale per 10 clicks on the same product, you?d be operating at a profit (get $25, spend $10 a profit of $15 per sale).

    Keep this in mind when comparing different products, different niches and different platforms.

    For example, facebook ppc tends to convert less than bing or adwords, but clicks tend to be cheaper on facebook. Which one will give you the best profit? Run a small campaign on each to find out your avg cost per visitor, and use the calculations above to find out.
    Note that these calculations/logic apply to all paid traffic, not just ppc. Profitability of solo ads, banner advertisements, etc? can all be tracked using the above system.

    Recommended reading:
    If you are fairly new to clickbank, and are wondering how to pick products with low competition but good demand (the so called ?hidden gems?) check out my other thread entitled:
    How to Choose CB products for Newbies - a 5 minute guide

    On the other hand, in this other thread I point out the type of clickbank sites/vendors that you should NOT promote:
    The Types of Clickbank Sites That You Should NOT Promote

    Hope this has been useful; now go make some money!

    Your friendly clickbank vendor,
    Mancar
     
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    Last edited by a moderator: Jun 19, 2017
  2. santhej

    santhej Jr. VIP Jr. VIP

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    Excellent Post.I am trying ppc with Facebook ads now and this post has come at the right time..
     
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  3. hanakuso

    hanakuso Newbie

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    Great !
    Fore more data analysis I would like to use decision tree to classify your ads or kw. I am on the way of using it but I have to understand a little bit more the stats behind before using C4.5 model or even simpler - like giving 1 point to a metric...
     
  4. ThemeWave

    ThemeWave Regular Member

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    As always, very helpful info. I've given ppc a try a few times but never really gave it a proper go, meaning I'd always just throw things together with out much thought and without any calculations..

    The big mistake I've been doing is sending the customer straight to an aff link or a page without capturing leads. If I had of done this to start with and built a good list with a good follow up I would have still had those customers today to market other products too. Now I'm more familiar with email marketing I'm going to give ppc another try so this was a good thread to read!
    Thanks
     
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  5. Ambitious12

    Ambitious12 Elite Member

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    Oh that is really great,and one should bookmarked it to get the excellent data i would say.
     
  6. zorroblack

    zorroblack Newbie

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    thanks mate..it's very useful..hopefully you can update for adsense monetizing and what paid traffic to get good ROi
     
  7. mancar487

    mancar487 Jr. VIP Jr. VIP

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    That's what many affiliates do but you lose out on a lot of money if you do not use a lander with opt-in. Building a list is key to long term income.

    Mancar