During my time in the lovely World of PPC, I have seen many campaigns in complete havoc. No tracking, one-word broad match keywords, targeting the entire planet when you are a local mechanic…and much worse! But what happens when you evaluate an account that is doing seemingly well? Everything seems to be in place, conversions are happening, and the business owner is making money. Where do we go from here? Time to start taking a look at the true impact of increasing conversions.
Strap yourself in boys and girls, this math class starts now!
Every PPC Strategist/Account Manager has different goals for their clients. The front-runner is to optimize the campaigns based on an average maximum cost per conversion (CPA). This essentially means to sort of start at the finish line. Say to yourself, “Self, this is the most that I am willing to spend to go ahead and acquire an individual as a customer,” and basically work yourself backwards from that particular amount. What many clients –and Strategists alike- don’t know or don’t realize is what the true cost of the extra conversion really is. Even if the average CPA is south of the maximum allowed CPA, the last conversions may actually drive up the cost, or even worse, lead to a loss for the client.
Let’s have a look at an example.
Pretend you are the person managing the account of an e-commerce auto parts store that has the coolest accessory for the newest Acura. That accessory sells for $25 a pop and the profit on each sale is $15, just take away the ad spend from the profit.
Hold your breath, we are just getting started…
So, you are the one managing the campaign and you get 100 conversions for a total cost of $1,000. This leads to a CPA of $10 (remember, $25 – $15 is $10).
The profit for the client is $500. Since you are so awesome, the client said that he/she can afford a CPA of $11 if he/she gets more conversions as the $11 is still well within his/her margin of profit at $15. You started targeting which keywords are the very best for the client and –by the grace of magic and all of its star-like wonder– knew to drive 20% in extra conversions until you got to the desired avg. CPA of $11.
Now you have 120 conversions at a total cost of $1,320.
The client is happy, you are patting yourself on the back and everyone goes off into the sunset with a big fat smile. But should the client be jumping and clacking them heals together in joy?
Let’s take a deeper look at those newfound conversions and its impact on the initial CPA.
Extra Conversions: 20
Extra Budget: $320
This leads to a CPA of $16 on the additional conversion! In essence, he/she actually lost money with the additional conversions. Now we are only looking at a profit of $480.
So, is this really a bad thing or what?
Well, I guess you can say not really; it depends on the end goal of the client and other external factors that sometimes we just don’t know as a PPC manager (life time value of a client, profit margins, branding value, increase in market share, so on and so forth). All this being said, it all boils down to the fact that it is important that both you and the client know of the price difference within the actual additional conversions.
Therefore having a very experienced PPC Strategist/Account Manager is extremely important, one who focuses not just on the marketing…but also the financials of all factors involved. This has been one of my main focuses in creating IMPACT MARKETING. Our motto is “Going Deeper for the Best Results” and I think that this scenario exemplifies that approach. We believe in fostering growth with the very best strategy possible, and these are not just words, they are actions.