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Per Click - Step 4 Spending
Ask Susan - Tip of the Month
March 2004
Before
I get to the Pay Per Click this month I'll bring you up to date on the latest
search engine news.
Yahoo! is now using their own algorithms instead of using
the Google database. The Yahoo! algorithm seems to get
"back to the basics"
of good website content, whereas Google was focusing
on links to the website making it much more difficult
for small businesses to get good rankings. Yahoo! powers
about 35% of the searches on the Web. This is good news
for small business.
This also reduces the importance of the Google
rankings because they drive about half of the searches on the Web compared to
about 85% of the searches when they powered Yahoo!
There are six major
steps to effectively use paid advertising on the Web.
1) Which key
phrases (search terms) to use?
2) Which service has
the best price for each key phrase today?
3) What is the most
effective wording to bring in customers? 4) How
much should I spend and how do I control the spending?
5) What ranking do I want and how
to I keep it there?
6) How do I know which advertisements are bringing in
customers and which ones are wasting my money?
Today we look at Step
4: "How much should I spend and how do I control the spending? " You
have a list of key phrases and ads written for each one. How do you set a budget
and how do you control the spending to get the "most bang for your buck".
First
question: How much should you bid?
The answer starts with determining
how much a new customer is worth to you. If you will make an average of $10,000
over the lifetime of each new customer you will be willing to spend more then
if you will make $10 profit on the average for each new customer. How much are
you willing to pay for a good lead?
One way to think of this is to figure
the total cost of a sales person. How many sales leads would they have to make
to "earn their keep"?
The next factor to determine is that not every visitor
to your website will become a good sales lead. Typical conversion rates of visitors
into sales leads are 1-2%. To computer your conversion rate, divide the number
of new leads from your website by the number of visitors to your website during
the same time period.
How many of these leads from the website did you
convert to customers? Multiply this by the visitors to leads conversion rate to
get the overall conversion rate of visitors to customers.
To compute how
much you should bid take the amount you are willing to spend for a good lead.
Divide it by the conversion rate. For example if you will pay $100 for a good
lead and you figure a 2% conversion rate of website visitors to leads and a 50%
conversion rate of leads to new customers. Then you are willing to pay $1 for
each visitor. Don't bid more then this in pay per click advertising.
OK,
so now you know how much to bid for each key phrase.
How do you control
the position?
The easiest way is a tool like Gotoast.com which provides
automated bidding based on the position you choose and how much you are willing
to spend.
You can also log in periodically (daily is recommended), check
your rankings and adjust your bid as needed.
Next month we'll talk more
about rankings.
How much should you spend in total?
That
depends on your budget and how many new leads you can manage. You can set your
bids and daily budgets and see how quickly the budget is spent.
A common
beginner mistake is to spend your entire budget in the first few days of the month.
Because so many people do that, the prices are often much higher at the beginning
of the month and then drop down later in the month as the novices drop out. So
if you are experimenting, try it later in the month for a better deal.
Another
mistake is to spend too much per bid. Lower positions are cheaper and can bring
you serious customers especially if you write a great ad.
How do you
control how much you spend?
You can set limits on your spending in
each PPC tool. Some provide daily limits and will take your ad down when you have
spent the daily amount. Others provide monthly totals that they will not exceed.
Or you can put into the account only what you want to spend.
You probably
want to spread it out over the month so you can handle all the sales leads you
receive.
Advanced tips
For those of you familiar with the
basics, the next step is determining the conversion rate per key phrase. Gotoast.com
can provide additional data. This insight is useful in setting the right price
for each ad.
Next month we'll talk about: "What
ranking do I want and how to I keep it there?"
We are getting amazing results with pay per click advertising.
Hope to see you there! Susan
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