The PPC cost model

The challenge some advertisers face is they simply can’t make the numbers work for their Google Ads campaign. They have to spend more money on click charges and other related costs, than they make from a lead or sale. There simply isn’t enough profit in the sale of their product or service to off-set the costs associated with developing and managing an Google Ads account.

This sometimes happens slowly, over time. Advertisers that began using Google Ads several years ago, when there were far fewer advertisers, much cheaper clicks and Google Ads was a lot simpler. These advertisers are now finding it difficult to compete. Years ago, you may have been able to sell a $20 item to a one-time buyer, but not today.

Having a PPC campaign means you have now entered the world of “online direct marketing”. And while PPC is the fastest and most flexible form of direct-response marketing ever invented, it still conforms too many of the marketing industry’s statistical averages that have proven out over the last 100 years.

Unless you have unusual circumstances, you should expect a “conversion rate” of around 3-5%. That means about 4% of the visitors to your site from a PPC campaign will take “the desired action”. The desired action can be any one of a number of things, such as; filling out your contact form, signing up for your newsletter, downloading a special report, calling you on the phone or perhaps buying a relatively low-cost item. These are actions a visitor from a search engine will realistically take within 30 – 90 days. I use 30 – 90 days because that is how long Google Ads tracks a visitor after they click on your ad. But in many cases, the desired action only produces a lead, not a sale. Once you have the lead, you then need to convert it to a sale. Conversion rates from a lead to a sale are typically 20-50%.

I want to emphasize that there can be a wide variation in what is considered a conversion and not all desired actions can be recorded using Google Ads conversion tracking. However, if you do register actions as conversions in Google Ads, remember that conversions can be registered in Google Ads up to thirty days from the date of the last clicked Google Ads ad.

Another challenge that confronts novice PPC advertisers is when the most desired action is a phone call. That’s because a phone call cannot be easily tracked and reported in Google Ads. This presents at least two problems. 1) You lose the ability to track the action back to a search query, keyword or ad, and 2) It becomes more difficult to see tangible improvement in the near-term. If you will be judging the performance of your Google Ads account based on the number of phone calls, you need to have a reliable benchmark and plan on at least a 2-3 month test to gather statistically significant data on which to evaluate the new campaign. For additional information, see my article titled Telephone conversions.

I usually suggest using conversion tracking for actions a visitor from a search engine would realistically take within 30 days of visiting your website from an Google Ads ad. That’s because, as a campaign manager, I want to get as much data as possible that indicates you have made a connection with a prospect. Therefore, I would typically want to track whether a visitor performed an action such as downloading a white paper or signing up for a newsletter, rather than if they purchased a $500 item. I suggest this because I will have a lot more data to work with.

Now back to the example of a 4% conversion rate. If your average CPC (Cost-Per-Click) is $1.00, you are paying about $50 for a conversion. If the initial conversion only produces a lead, then you still need to convert the lead to a sale, which will increase you cost per sale even further. Are those numbers realistic for your business? Can you live with the results? Only you can determine that. My job is to get the average CPC down as low as I can, while still getting qualified visitors. I do that by having lots of relevant keywords with lower CPCs, having compelling, yet qualifying ad copy and using techniques to filter out unwanted impressions and clicks. There is a lot more to it, but these are the basics. If you want to get an idea of what the average CPC might be for some of your most popular keywords, go to SpyFu.com.

There are other factors to consider. Perhaps the most significant being the life-time value of a customer. Once you have acquired a customer, what is the likelihood of them buying from you again? How extensive is your offering? Really successful internet marketers can afford to lose money on the first sale because they have an extensive “back-end”. Meaning they have many other, more profitable products or services they can sell, once they have acquired the customer. If you don’t, then you can’t effectively compete with these advertisers.

Some industries are particularly vulnerable to this situation. It is particularly challenging in markets where the main keywords are relatively short, only 1-2 words, and the competition is fierce. Businesses such as computer repair, software development, locksmith and auto repair. It becomes particularly difficult if you are targeting a nation-wide audience because there is a lot of competition and you often compete with “lead brokers”. These are very skilled internet marketers that have fine-tuned their campaigns to operate on very thin margins.

Here is another challenge that occurs when your most popular keywords are short. It’s very difficult to maintain good quality scores, which means you are forced to bid higher. I consider anything “7/10” or above to be good. The reason is that these keywords tend to be quite broad, meaning lots of advertisers are bidding on them, and the overwhelming element of the quality score is “how the keyword performs across the entire Google system”. Unfortunately, this is something we have no control over. Although, there are tactics we can use that could help minimize this condition.

In summary, some advertisers face a unique set of challenges when it comes to making Google Ads a successful channel, and quite often these advertisers tend to be smaller businesses with limited budgets and lack the experience and commitment necessary to perform an adequate market test. All the more reason to engage the services of a professional. If you only try making it work yourself and fail, you may never know if Google Ads can actually work for you.