Inside Online Advertising
By Diggers Realm

Google Adwords - Analyzing Your Expenses Vs. Sales

If you are using Google AdWords to market your product or service you should treat it just like any other form of advertising. The good thing is that Google provides you with enough information to derive your cost per sale, but only if you set things up properly.

First of all on your website you need to make a proper landing page for your product or have some other tracking method to determine where that the traffic came from. If you are sending all traffic -- including search engine and all paid advertising -- to the same page there is no way to know which traffic made you the sale. Therefore there would be no way to truly judge whether your advertising campaign is working.

Once you can determine where the sale traffic originated from then you can get down to the numbers. What you want to break it down to is cost per sale. How much did it cost you in advertising to make a sale?

If you are attempting affiliate marketing -- selling someone else's product in order to make a commission -- there is a great article over at Vincent Rich. Here's an excerpt:

Let’s say I have Product A, which has a commission of $23.50, a conversion rate of 2% and a number 1 position at the PPC search engine at $1.00 per click.

Gambler Goes Like This….

He doesn’t know how well the product will convert. But he does know if he bids $1.00 per click, his ad will be displayed prominently at the top of all the other PPC ads! So what does he do? He bids $1.00 per click for the number 1 spot and hopes it will be profitable. 100 clicks later… this is what happens:

No. of clicks = 100
Conversion Rate = 2%
No. of Sales = 2
Commission per sale = $23.50
Gross Profit = $47.00
Gross Profit per visitor = $0.47

Expenses = $100.00
Net Profit = -$53.00
Net Profit per visitor = -$0.53

So gambler loses $53.00 on 2 sales.

Knowing your cost per sale is the most important thing in business. Above I just covered advertising, but if you are actually producing a product you would also have to factor in cost of producing -- or acquiring -- the product as well.

If you knew you would make $50 off of every 100 visitors -- on average -- and those 100 visitors only cost you $25 to acquire your only limitation is your bankroll. If the numbers hold true, dumping $1000 into advertising would bring you $2000 in sales. You would have to base the average off of a large enough sample size though to be guaranteed the results.

This entry is in the following archive(s):
Advertising Archive
Google AdWords Archive

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Posted on Fri Nov 04, 2005 at 09:14 AM | Permalink | Email This | Blogroll IOA! |


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