Ever puzzled why Google AdWords makes you pay extra to seem increased on the web page?
Like many enterprise homeowners I converse to, it’s possible you’ll suppose they cost extra as a result of individuals are extra probably to purchase from you when you’re in a prime place.
Nicely, this isn’t fairly correct – and the refined misunderstanding can severely hamper your potential to run a worthwhile AdWords marketing campaign.
Right here is the one piece of knowledge that may make it easier to generate a optimistic ROI out of your AdWords spend instantly:
Conversion rates don’t vary with ad position.
In different phrases, an advert in prime place will generate extra clicks however gained’t generate extra conversions per click on.
Why does this matter a lot? Let’s have a look at an instance.
Say you could have a web site that sells girls sneakers and you discover that the precise match key phrase “girls sneakers” converts at 2%, with a median buy quantity of $60 (out of which $30 is revenue).
In case your common CPC for this key phrase is $2, then you definitely’ll get $30 revenue for each $100 you spend. In different phrases, you’ll lose $70 on common for every sale you make.
Booooo!
Now, let’s say your goal is to interrupt even on AdWords spend to amass a brand new buyer, understanding that it’s best to be capable of observe up through e-mail to generate repeat purchases.
Which means that for the 50 clicks it takes to get you one conversion, you possibly can solely afford to pay $30. Accordingly, your max CPC ought to solely be:
30/50 = $0.60/click on
If you happen to modify your max CPC for that key phrase to $0.60, you’ll hit your goal of breaking even for every new buyer you purchase by AdWords.
I notice this sounds too good to be true. Not making a revenue from AdWords? Simply give them much less cash!
So what’s the catch?
If you cut back your bid, your advert place decreases.
In case your preliminary $2/click on bid was getting you an average position of 1.4 (i.e. it was on the prime more often than not) and also you have been getting 50 clicks every week, you would possibly discover that your new bid of $0.60/click on will get you a median place of 5.8 and it takes you 8 weeks to get the identical 50 clicks.
The distinction is that by the point you get the 50 clicks you’ll have damaged even in your advert spend as a substitute of shedding $70.
In some instances, nevertheless, it’s possible you’ll discover that lowering your bid will decrease your place a lot that you just don’t get any clicks in any respect. The one strategy to generate a return for these key phrases is by bettering your conversion charge or growing your lifetime buyer worth…
The significance of lifetime buyer worth
If you report a conversion utilizing AdWords conversion monitoring, you possibly can assign a “conversion worth”:
This tells AdWords how a lot cash the conversion was value to your online business.
This may be the identical for every conversion. For instance, you would possibly use your “common income per consumer” for a SaaS enterprise. Alternatively, you possibly can change the worth for every conversion; on an eCommerce web site, you would possibly set the conversion worth to be the overall transaction worth for a sale.
As soon as you’re attributing a price to every conversion, it is possible for you to to make use of the Value/Cost field in AdWords to find out which key phrases aren’t acting at your goal ROI.
This appears fairly easy, however deciding what worth to assign to every conversion is a refined and significant determination. Let’s have a look at some eventualities by which assigning the incorrect worth to your conversions might severely throw your numbers off:
Instance 1: For the web site that sells girls sneakers, when you solely base your bid changes on a single common buy worth, you gained’t be making an allowance for the truth that individuals who search “girls night sneakers” sometimes spend greater than individuals who seek for “girls flip flops”.
Instance 2: If you happen to’re working a SaaS enterprise which makes accounting software program, you would possibly discover that individuals who join a free plan after looking for “tax compliance software program” usually find yourself upgrading to your most costly plan, whereas individuals who join a free plan after looking out “free accounting software program” by no means improve to a paid plan in any respect.
In each eCommerce and SaaS companies, there’s a tendency to make use of a variant of average revenue per user to calculate the lifetime buyer worth as a result of it’s the easiest to calculate however, in each instances, cohort evaluation may be simpler.
An in depth dialogue of calculating lifetime buyer worth is past the scope of this text, however there are many nice articles on the subject.
It’s troublesome to make correct predictions of lifetime buyer worth and choices about bid adjustment with out loads of pattern information, so it’s best to anticipate that your conversion values will change into extra correct over time.
The bottom line is to at all times put effort into understanding your lifetime buyer values and attributing conversion values as precisely as you possibly can, given the information you could have out there on the time.
Not understanding lifetime buyer worth can value you
So why would anybody ever bid extra on AdWords to get the highest place if they’ll get the identical clicks that convert on the similar charge by paying much less cash?
The reply is that, for any given search time period, there are solely so many clicks that Google can promote you and the lion’s share of these clicks go to adverts within the prime place.
If your online business has a better lifetime buyer worth (or a extra precisely calculated lifetime buyer worth) and you understand which you can pay extra whereas staying worthwhile, the chance value of not shopping for essentially the most clicks you possibly can afford exceeds the cash you’ll save by getting your clicks extra cheaply.
A enterprise that is aware of precisely how a lot they’ll bid on every key phrase of their marketing campaign whereas remaining worthwhile instructions an enormous and sustainable aggressive benefit.
Because of this, precisely calculating your lifetime buyer worth is one thing you ought to be keenly invested in.
You would possibly even discover that when you calculate your lifetime buyer worth precisely, a marketing campaign you thought was unprofitable was in reality worthwhile!
Why not let Google do the heavy lifting?
If you happen to’ve adopted the advice in my previous article and have your spending focused into advert teams with one advert and one actual match key phrase, you need to use Google’s Conversion Optimizer to set “cost per acquisition” or CPA bids.
These basically do the above calculation for you routinely and repeatedly. Conversion Optimizer is most helpful for adjusting bids throughout Google’s Display Network however may also be an effective way to routinely modify bids in your search campaigns.
Nonetheless, when you’ve put the hassle into understanding the completely different conversion values for every of your key phrases, you’ll have a distinct goal CPA for every advert group anyway, so setting the max CPC bid goes to be the identical quantity of labor.
I don’t know whether or not it’s as a result of I’m a masochist or an automatonophobe however I at all times desire to do my bid changes manually.
The most effective plan of action is to check every technique and see what works greatest for you. However on the very least, have a look at analyzing your bids manually earlier than switching over to CPA bids.
That method you’ll have a greater really feel for what ought to be occurring and can be capable of see how properly Google’s automated bid changes are performing compared.
Bid optimization may be really easy it looks like dishonest
Numerous articles make CRO sound so simple as A/B testing a few completely different button colours after which sitting again and smoking cigars whereas the cash rolls in, however the actuality is solely completely different.
Particularly on the very low volumes that many people can afford after we first begin spending on PPC promoting, a extra tactical method is required – and that’s the place bid optimization is available in.
And whereas it’s true that once you modify your bids and decrease your place on the web page you’ll miss out on gross sales, the gross sales you do make will not less than be worthwhile.
This manner, you possibly can then work on optimizing the remainder of your gross sales funnel with out shedding sleep over how a lot money you’re hemorrhaging on AdWords.