What to Know Before you go with Google AdWords

By: Nathan Lewis

Pre-qualified visitors are what website owners are looking for. Attracting these visitors is also the hardest thing to do.

For many website owners they will spend their entire marketing budget on Google AdWords or other similar programs in a vain attempt to attract buyers. However, unless you have a huge budget to attract hundreds of buyers you may simply be throwing away your money on pay-per-click or cost-per-click advertising.

Before you go down the road of AdWords or any of these types of programs you should do the math to see if this will actually help your business. Here are some questions you need to answer before using a pay-per-click type of program.

What is your Website Conversion Rate?

This is a simple calculation of sales divided by total visitors. Using this formula (S / V) will give you the percentage of sales to the number of visitors to your site.

Conversion rates differ greatly depending on your product and how your website is optimized to make shopping easier for your visitor. Another factor is also if you have live customer support or require an exchange of E-mails to answer questions for a buyer.

Higher ticket items such as electronics will require that a shopper make several visits to various sites before making their purchase. Almost instinctively, shoppers of high ticket items will make several visits to compare pricing and features before making a purchase. Electronic and high ticket websites may struggle to get to a 1% conversion rate.

On the opposite end of the spectrum is Amazon.com. It has been reported that this site may experience some of the highest conversion rates because people don't go there to read a book. Visitors go there to buy a book. Their visitors have already done the looking elsewhere and simply go there to make their purchase. For Amazon.com their conversion rate is said to be in excess of 12%.

Somewhere in the middle of these 2 extremes are the rest of the websites. Before you invest in a pay-per-click campaign you had better know where your site stands.

What is your Average Profit per Sale?

Not how much is your average sale. How much profit do you average per sale? I hope that you are not in business just to sell a lot of product. That would be a lot of work and not as much profit at the end of the long work day as you had hoped.

For this part of the equation you need to know how much profit is generated by the sales on your website. The simplest way may be to take the average profit for a period of time such as a day or week, depending on how busy your site is. Break this down into an average profit per sale.

What is the Pay-Per-Click Bid for your Keyword Phrase?

Each keyword phrase on Google has a bid that you can place to increase/decrease your ranking. The theory is, the higher the ranking in the Google AdWords results the more visitors you will get from this program. Therefore, the tendency is to raise your bid to obtain the optimum ranking. What this amounts to is how much are you willing to spend to get a pre-qualified visitor to your site.

Bids can range from as low as a nickel per click to upwards of $15.00 for some items. What you bid is going to depend on how valuable the pre-qualified visitor means to you.

Is a Pay-Per-Click Campaign Right for You?

Let's say that your site is doing pretty good and has a 2% conversion rate. That means that for every 100 visitors to your site that you have 2 sales.

Then let's say that you average $20 profit per sale. That is after you pay for the item, sell the item, pay your selling fees and have it shipped to your customer you have $20 to show for your efforts.

Now, you find that in order to get a top 20 ranking for your keyword phrase that it is going to cost you a $.50 bid per click. That is, it is going to cost you 50 cents every time someone clicks on your ad.

Using the amounts and information above it is going to cost you $50.00 in AdWord fees to get 100 pre-qualified visitors to your site.

With your conversion rate of 2% you are going to close 2 sales from these 100 visitors.

From these 2 sales you are going to make $40.00 in profit.

The bad news is, you spent $50.00 to get these 100 pre-qualified visitors to your site. You lost $10.00.

What if?

What if you had the conversion rate of Amazon.com? You would have had 12 sales with a profit of $240.00, less the $50.00 in Google AdWord fees. You now have $190 to show for your efforts. Bad news, this isn't reality. Very few sites are going to have this high of a conversion rate.

Here are some other combinations:

• 1% CR, $20 PPS = $20.00 less Google AdWord fees = $30 Net Loss

• 1% CR, $40 PPS = $40.00 less Google AdWord fees = $10 Net Loss

• 2% CR, $20 PPS = $40.00 less Google AdWord fees = $10 Net Loss

• 2% CR, $40 PPS = $80.00 less Google AdWord fees = $30 Net Profit

• 3% CR, $20 PPS = $60.00 less Google AdWord fees = $10 Net Profit

• 3% CR, $30 PPS = $90.00 less Google AdWord fees = $40 Net Profit

• 3% CR, $40 PPS = $120.00 less Google AdWord fees = $70 Net Profit

Before starting any pay-per-click campaign I strongly recommend you answer the questions in this article. The answers you get will help determine if this type of advertising is right for you and your website.

Nathan Lewis has over 25 years of experience applying technology to solve complex small business problems.

Mr. Lewis is the Sales and Marketing Manager for CJ Internet Sales, an Internet retailer with sites such as:

CJ Gift Baskets

CJ Picnic Baskets

CJ Outdoor World

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