marketing and sales executives from Silicon Valley

Tuesday, September 13, 2011

Google CPC - are your expectations set right?

A client wanted to launch his wellness business and grow using an initial "consumer Internet" go-to-market approach. I cautioned that there were few good examples of a B2C success in his product and service space, let alone a direct analogy that he could use to garner best practices or emulate. In short, he was offering a new product in a new market, and would likely need a heavy education component or high touch marketing at the start.

Having used Google adwords before, he thought that it might be 'the ticket' to getting things off the ground. After two months of trying the Google CPC route, he felt that he had exhausted Google adwords as a viable vehicle for lead gen. Had the client more time and not been insistent on CPC ads, the "expectation" phase of his marketing campaign could have had more time for discussion.

Online advertising, whether display or CPC, has some general economics that people overlook. The good thing is that the factors in the model can be tweaked to increase performance and ROI, but the bad thing is that there are enough variables that it can be easy to focus on the wrong elements. The basic metrics of advertising, especially search CPC advertising, has some key numbers to keep in mind. These are:
  • Keyword searches - searches with target keywords where your ad appears
  • Click through rate - or the ration of clicks to impressions 
  • Conversion to Free action - the percentage of visitors who register
  • Conversion to Paid action - the percentage of registered users who end up paying or upgrading
For this discussion, I'll use basic industry rates that are on the optimistic side.
  • Keyword searches: 1,000,000
  • Click through rate: 2.5%
  • Conversion to Free action: 20%
  • Conversion to Paid action: 5%
Using those numbers we might get a funnel that looks like:

The disparity between the searchers who may see the ad and the number of registered paid users is visually striking and provides a "come to Jesus" moment.  While your first reaction might be - 1M search ad impressions might yield only 250 paid users, I tend to think about the cost of the ad and how the advertising might even pay for itself.

Using simple math (again, everything is simplified here), if the CPC was $1, that means each paid user must have a contribution of $100 per user. If the CPC was $0.10, that contribution diminishes to $10 per paid user. Contribution, in this case, is the margin built into the product or service price that, net of costs.

I'd be worried if I didn't know how I might drive the CPC down or if I did have other tools and methods to improve the conversion numbers. But once you get past the worry, we can look at the point of this post - to provide awareness. A CPC campaign in the example above can, and often does makes sense. It's important to set "expectations" and  to know what you need for your campaign to be successful.

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