Tips for Determining your Ideal PPC Budget Part 2

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Welcome to Part 2 of “Tips for Determining your Ideal PPC Budget”. Last week, in Part 1, we started talking about a strategy for determining your ideal budget for PPC (for those who haven’t been lucky enough to have such a budget imposed upon them from above). This strategy helps take a lot of the guesswork out of the process, and can give a pretty close to accurate projection of what a business could expect to gain under various budget scenarios. We figured out our average sale amount, our estimated conversion rate, and our estimated cost-per-click in Part 1. And now, it’s time for the fun part…

Let’s Do the Math!

Using your average sale amount, your estimated conversion rate, and your estimated CPC, you can make predictions based on different budgets.

Let’s start with a very modest budget of $5,000/month. The average sale amount is $200, estimated conversion rate is 1.5%, and average CPC is $1.50:

$5,000/month (budget) /$1.50 (CPC) x 1.5% (conversion rate) x $200 (average sale amount) = $10,000 (net revenue)

Not bad! But you need to factor your costs, including cost of goods, click costs, and any fees for a professional PPC firm to manage your campaign (I wouldn’t recommend trying to run a PPC campaign without quite a bit of training, as it is so easy throw money away if you don’t know all the ins and outs). Let’s say you’ve paid a PPC firm $2000 to manage your campaign for the month, and that for every order, 45% of the selling price goes toward manufacturing costs:

$10,000 (net revenue) x 65% (portion of product revenue retained after factoring production costs) – $5000 (click charges) – $2000 (management fees) = -$500 (immediate gross profit)

Oh no! After factoring in your costs, you’re in the negative. Of course, if you consider longer term effects such as likely future repeat purchases by these new customers, not to mention synergies between PPC and other sources of traffic, you’ll get a lot more than the immediate figures indicate. Still, it seems that at this level of spending, you can’t really expect to earn much ROI, if any, up front. Even if you were to bring up conversion rates significantly, the return would be in the positive, but still relatively low.

Increase the Budget, Increase the Returns

Let’s see what happens with a $15K budget. We’ll factor more out of the overall budget for management costs, and assume our firm has been able to at least keep conversion rates steady:

$15,000/month (budget) /$1.50 (CPC) x 1.5% (conversion rate) x $200 (average sale amount) = $30,000 (net revenue)

$30,000 (net revenue) x 65% (portion of product revenue retained after factoring production costs) – $15,000 (click charges) – $4000 (management fees) = $500 (immediate gross profit)

That’s looking a lot better! It’s not a huge immediate profit, but it goes to show how increasing scale can tip ROI in your favor. Of course, if conversion rates are increased, ROI is boosted and more gross profit is ultimately generated. For instance, in the above scenario, if conversion rates were brought up by just 0.5%, profits would increase significantly:

$15,000/month (budget) /$1.50 (CPC) x 2% (conversion rate) x $200 (average sale amount) = $40,000 (net revenue)

$40,000 (net revenue) x 65% (portion of product revenue retained after factoring production costs) – $15,000 (click charges) – $4000 (management fees) = $7,000 (immediate gross profit)

By using formulas like this, and experimenting with different budgets, conversion rates, and CPC, it can take a lot of the guesswork out of what to expect from your campaign. PPC is a bit unpredictable, so any calculations you make shouldn’t be read too literally, but formulas like this can definitely help to give direction as to how much of an investment and what sorts of conversion rates will likely be needed to return positive ROI.

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Tips for Determining your Ideal PPC budget Part 1

How much to invest in PPC can be a bewildering task for business owners. We are often approached by companies that already have a PPC budget in mind, and just need us to help determine how to best allocate that budget. Just as often, though, companies have no idea how much they should be spending on PPC, and need some advice. Here are a few techniques we use to figure out a reasonable figure.

Determine your average sale amount. Get an average for the entire year if possible, as to account for any seasonal fluctuations in sales volume. (Note: in this article we’re focusing on e-commerce sites, but the same principles could be applied to a non e-commerce site by assigning theoretical monetary values to whatever actions you’re trying to drive, whether it be a newsletter sign-up, a phone call, or anything else you’re hoping will occur as a result of this advertising)

Estimate conversion rate. Typically PPC, when done right, produces higher conversion rates than most other sources of traffic to a site. And, as the campaign develops, you further qualify through optimization until you’re targeting only the highest-converting traffic. What to expect for an initial conversion rate can be tough to figure out with no previous PPC data to look at as a reference point. So many variables play into conversion rate (ad copy quality, landing page, overall site quality, etc.) Still, most search marketing companies that have been around awhile have handled campaigns in many industries, and may be able to give you an idea based on their past experiences.

Estimate average CPC. Run a handful of the most basic terms that describe your business through Google’s Traffic Estimator to see what you can expect to pay, on average, per click, for your most popular terms. Of course part of PPC is finding the less searched on, more qualified, cheaper and higher converting keywords, but this will work for a rough estimate.

In Part 2, we’ll show you how we can use this information to make predictions about what kind of return we might get under different budget scenarios.

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Top 3 Things to Look for when Hiring a PPC Agency

This is a topic that’s been covered in many other blogs over the years, but I thought I’d add my own perspective, especially since it has somewhat changed over the years as PPC Marketing, particularly Google Adwords, has developed. The initial approach a potential PPC firm should take to managing your campaign would vary quite a bit depending on several factors such as type of site/industry, whether there’s an existing campaign, etc. So, there isn’t really a set list of questions that would suit every case. Whatever the situation, there are certain skills you should be sure a potential PPC firm posesses before it is trusted with managing your campaign.

1. Experience
Not nearly enough can be said about this. There is a certain understanding of PPC advertising, and how it fits in and influences other types of traffic, that can only come with years of experience in managing campaigns and interpreting statistics. If your potential firm doesn’t have adequate experience, they are likely to make a lot of trial and error mistakes that a more experienced firm would foresee, causing your campaigns to deliver lower ROI than they should, especially in the beginning. The ads are also the “face” of your company, and if the ad copy is poor, or the landing pages are not intuitive based on the search query, your image and reputation could be damaged for good. Ask how many years your campaign manager has been doing PPC professionally. A manager should have years of experience with all sorts of different sites and all sorts of different budgets. Also, find out how much this person will actually be managing your campaign, or if the majority of the work will be passed on to a less-experienced underling.

2. Progression
Experience without progression is pretty much useless. New features in Adwords are being added all the time, and advertisers who are early adopters can gain a huge edge over the competition, or at least remain competitive if the competition is also using the latest tools and techniques. Evaluating the degree to which the potential firm is progressive, and just their overall level of skill, can be tough without being a professional yourself. However, you can get an idea of how up-to-date the firm is by asking about some new Adwords developments and seeing how well they can explain them to you. It would be very worthwhile for the person evaluating a potential PPC firm to do a little reading on the Google Adwords Blog, particularly posts like this: http://adwords.blogspot.com/2010/12/10-of-our-favorite-adwords-innovations.html. Put the potential firm on the spot; pick a few of those new Adwords features and ask them to explain them to you in plain terms verbally, and whether or not they think any of these features would be useful for your campaign. Or, just ask them, what are some of the latest features in Adwords and how can we utilize them? If the manager doesn’t know about this stuff by now they’re pretty much in the dust, as will be your campaign.

3. Reporting
Reporting should be totally transparent, and you should get some sort of regular, standardized report that clearly shows the current and historical ROI of the campaign. The report should factor in all costs, including click costs and whatever fees are paid to the managing firm. You need to make sure you can easily verify the figures being reported to you, particularly conversions. When dealing with a large amount of data, the figures can easily be presented in a way that really slants things to give more credit to the PPC campaign than it really deserves. Have the firm explain how they will be measuring performance i.e. what analytics package will they use. Whatever they do, you should at least have something of your own that you control, like Google Analytics, set up on your site with conversion tracking. You need to make sure the managing firm will evaluate PPC performance within the context of overall site performance. Sometimes PPC done wrong can not only provide negative ROI itself, but also negatively affect other forms of traffic. When done right, PPC should not only provide positive ROI, but also provide a synergetic boost to other forms of traffic, particularly organic and direct. Make sure the potential firm will be monitoring these sorts of effects, and spend as much time as you can on your own looking at and trying to understand your own stats.

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Why you should be bidding on your own Brand Name in Adwords

One topic that has been heavily debated over the years is the extent to which PPC can “cannibalize” SEO. When you already have a top ranking organic listing, does it make sense to also pay for an ad to appear right above or next to it? Let’s consider the most basic example – your own brand name. If you have a website that isn’t completely blocked by the search engines for some technical reason, chances are you’re ranking #1 when someone searches you by brand name. And, chances are, the person will click that listing. So, why on earth would you pay for an Adwords ad to appear above it? Won’t that just make you have to pay for something you would have gotten for free anyway?

I’d like to argue that the small investment it will take to run a full-time ad for your own brand name will more than pay for itself over time and is well-worth doing. I promise I have no incentive from Google to make this claim; this opinion is based on years of Adwords experience, and more importantly years of experience interpreting website analytics and figuring out short and long term ROI for various marketing channels, and how they all fit into the overall picture.

Now, if you do some searches on Google for major brand names, you’ll see that some have PPC ads for their brand and some do not. I really feel that the one’s that aren’t are missing out on a relatively cheap way to really dominate the page, promote their brand and engage the user in a dramatic way. You can see that some brands have marketers that understand this and are taking full advantage. I really like the way Sears is doing theirs:

In the past few months, some new features have been added to Adwords that make bidding on one’s own brand much even more appealing than before. The one I’d like to focus on here is Sitelinks, and how Sears is leveraging them. Their PPC ad is, of course, the listing highlighted at the top of the search results page. The Sitelinks are the four blue links that go along with it (“Sears One Day Sale”, “Buy Gift Cards”, etc.). Sitelinks are a new feature in Adwords that lets the advertiser attach up to four links to their ad, essentially doubling your real estate for no extra cost. These Sitelinks can be changed at will and optimized based on ROI achieved by different combinations.

Would someone who searched for “Sears” and clicked the PPC ad have just clicked the organic listing had the PPC ad not been there? Almost certainly. Would this have saved the company a click charge? Of course. However, I’m willing to bet Sears is getting much higher revenue over time and much higher overall conversion rates when running that ad due to the way they so strongly command that search results page and custom tailor it for a potential customer. Between the organic listing and organic Sitelinks, which link to the standard, major parts of their site, and the Adwords listing and Adwords Sitelinks, which highlight more specific and current offers, they are giving the potential customer an enormous amount of info they can use to find and buy what they need more quickly and efficiently, before they even get to the site! And, those that do click the organic listing have the benefit of seeing and being informed by these Adwords Sitelinks, and it doesn’t cost you a thing.

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Dominate search results using Google Merchant Center Part 2

Last week, in Dominate search results using Google Merchant Center Part 1, we looked at a sample search results page in Google, and pointed out that over half the viewable area was dominated by listings that came directly from the Google Merchant Center.  We illustrated to e-commerce site owners the importance of getting a feed set up for a quick, regular new stream of high converting visitors.  We pointed out that these “free” Google listings would immediately appear in the Google “Product Search” results, and possibly in the normal Google search results as “Shopping Results” directly above the organic listings.

This week, in Part 2, we’ll cover how to get your product listings into the rest of these highlighted areas:

Directly above the organic listings are the “Shopping Results”, which anyone running a feed in the Google Merchant Center is eligible for, and for which there is no cost-per-click. To be eligible to run your listings in those other three areas, you need an Adwords account. The highlighted area in the top right of the image above contains “Product Listings”, while the remaining areas are two different forms of “Product Extensions”. Here is how Google describes the difference:

“Product Ads allow you to show the pictures, prices, and descriptions of the products you sell next to related searches on Google.com. Product Ads have 2 available formats – Extensions, which allow you to enhance your keyword-targeted text ads with product information, and Listings, a standalone format that requires no keywords or ad text.”

If you already have an Adwords account, all you need to do to utilize the Product Extensions is link to your Merchant Account from within your Adwords dashboard. Then, your ads will be automatically appended with specific product information when relevant. Doing so is at least worth experimenting with immediately – most advertisers are seeing much higher click-through-rates and better conversion rates as a result, and it literally takes no more than a click of a checkbox in your Adwords dashboard.

If you don’t already have an Adwords account, you can still utilize Product Listing ads without having to run a full-fledged Adwords campaign. You do need to create an Adwords account, but rather than set up keyword lists and ads, you just link your Merchant Center listings, and when people search for your products in Google they will appear in the upper right portion of the search results page.

Unlike Shopping Results, Product Listings and Extensions operate on a CPC basis. if you already have an Adwords account, linking your Merchant Account could very well bring your cost down by increasing your CTR. If you don’t have an Adwords account, setting up a Product-Listing-only Adwords account is pretty modest investment since product-based ads are typically much cheaper and convert much higher than normal text ads. If you are looking to invest in some online marketing for your e-commerce site, this would be a great place to begin.

Clearly the importance of having a Google Merchant Center account cannot be overstated. If you are an e-commerce advertiser and are not using it yet, or have something set up that you don’t really attend to or actively manage, you are missing out on a large portion of high-converting traffic.

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Dominate search results using Google Merchant Center Part 1

Question: What do the blue highlighted listings in this image have in common?

Answer: All of these listings are pulled from Google Merchant Center accounts. If you aren’t actively managing a Google Merchant Center account, your products don’t have a chance of appearing in any of these areas.

For years, Google has provided advertisers with a free way to list their products in the “Product Search” section of their website by joining the Merchant Center program and uploading a product feed. These listings have been slowly creeping into Google’s normal search results, but the past year some radical changes have been occurring, and product listings from the Merchant Center are suddenly being thrust into the limelight. Merchant Center listings are so strongly integrated into Google’s normal search results now, that in some cases they can take up more than half of the viewable area, as the screenshot above shows.

Thankfully, joining and listing products in the Merchant Center is still free. However, to take advantage of most of that highlighted area you need an Adwords account. For now we’ll focus on the free area, and leave the paid stuff for Part 2.

The non-paid Merchant Center listings appear in between the paid listings and organic listings (in the above screenshot, it is the 5-product block under “Shopping Results for coffee maker single cup”). Anyone with an active Google Merchant Center account is eligible to appear in this block. As with normal organic listings, getting to these top spots takes some careful optimization, but if you can get to the top, it can provide an enormous boost in traffic with no click costs. Furthermore, conversion rates for product ads are generally much higher than any other type of listing due to their high degree of specificity and relevance to the user’s search.  Either way, your listings are guaranteed to appear in Google’s Product Search section, which is a great source of high converting traffic in its own right.

Joining the Google Merchant Center always provides a boost in relevant traffic, often an instant, very significant boost, and there are no click charges.  If you have an e-commerce website, you should consider this a very high priority.  Getting a feed set up is quick and easy and can often be done manually if you have a small inventory.  Feeds do need to be updated regularly to reflect what is actually being sold on the site, so you’ll probably want to have an experienced firm help you out here.  Unless your database is a complete mess, it usually does not take long to set up a script that will automatically create your feed and upload it to Google.  A cron job can be set up on the server to trigger this script at regular intervals, so your feeds will be created and uploaded automatically for you.   Since all clicks are free, it usually does not take long at all the recoup the small expenses involved in getting your scripts set up.  Then you can just sit back and watch the high converting traffic roll in at no cost to you.

Next week, in Part 2, we’ll dig into how your Merchant Center account can be tied into your Adwords account for total search result domination!

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