Last Updated: Dec 13, 2014
Is advertising on Google and other PPC networks too expensive for your small business? The answer depends on a number of factors. Here are facts to consider before making up your mind about the feasibility of using pay-per-click ads online.
One of the problems small businesses struggle with when they use Google AdWords and other forms of pay-per-click (PPC) advertising is the high per-click cost for keywords and phrases that are associated with what they sell. The actual price-per-click varies greatly by the product or service, the actual keywords selected, and the position of the ad. Adgooroo reports that the average cost per click for Adwords text ads in 2014 ranges from $0.77 to $5.82 across 9 industry categories – an increase of 26% since 2012.
Even within a single industry, the cost of a click can vary significantly based on the specific item or service being advertised. Try to buy the term,”criminal attorney” with a geographic location (for instance, criminal attorney, Pittsburgh), and you may have to pay $15 to $17 per-click or more to get into one of the top ad spots in Google search results for that term.
Because of the high prices, it’s not unusual for small businesses to think that PPC advertising is unprofitable. It doesn’t take a lot of math to see that if your own cost per conversion is $24.50 and all of the costs for the product you’re selling total $26, you’d lose money on a $47.95 sale that resulted from a click on your ad.
The problem with that type of calculation, however, is that it assumes that you only sell one product, and that each customer who buys from you only buys once.
What small businesses forget when looking at the cost of their PPC ads, is that the way to benefit from advertising (in any form) isn’t by selling one product one time to each customer. It’s by winning the customer and getting repeat sales over a period of time. Those repeat sales may be additional purchases of the original product, or additional products you sell to the same customer.
Here’s an example of how things can change when you look at the bigger picture:
We ran AdWords campaigns for a group of products we used to sell, and we used tracking links as the links in the ads. Occasionally, I would look through shopping cart order for sales that didn’t carry a tracking link from our PPC campaigns and look back to see how we acquired those customers to begin with, and what their history had been.
Generally I’d choose a just a few of those orders at random, and search our database to see if the companies had previously ordered from us. (We sell to businesses, so most orders have company names in them.) If they had, then I’d pull up all their past orders, add up the total dollar amount of their purchases, and look at how long they’d been a customer. I also looked at the first order they ever placed with us to see if it came in through a click on one of our ads. That helped me gain some perspective on the value of our ads long-term.
What I found, is that many of our repeat-order customers first found our site by clicking on one of our AdWords ads. Furthermore, the lifetime value of those customers made the pay-per-click fees we incurred to acquire them worthwhile.
I also found that the individuals who placed the orders sometimes changed jobs, and if they were doing the same job at a different company, they placed orders with us for their new employer. It wasn’t unusual for their former employer to continue to order from us, too.
We knew, too, that many of our new customers clicked on our ads, and then once they reached our website, theyld pick up the phone and call us to place an order. Those orders nevered showed up with a referrer in our shopping cart, even though they happened because of a click on one of our PPC ads.
Reviewing sales in this way does not, of course, didn’t tell us the exact ROI for our pay-per-click ads. But it did show us how we continued to benefit from a click long after the initial visit and purchase. That information, along with other statistics we gathered (such as the average dollar amount of shopping cart orders), helped us determine what we should spend on advertising.
The bottom line here: If you only have one product and can only sell that one product once to each customer, pay-per-click may not work for you unless the product or service commands a premium price. But if your customers come back to buy from you multiple times, you need to consider what the value of those repeat sales are to be able to make good decisions about how much to spend on pay-per-click and other advertising.
Copyright 2014 Janet Attard. All rights reserved.
About the author:
Janet Attard is the founder of the award-winning Business Know-How small business web site and information resource. Janet is also the author of The Home Office And Small Business Answer Book and of Business Know-How: An Operational Guide For Home-Based and Micro-Sized Businesses with Limited Budgets. Follow Janet on Twitter and on LinkedIn