Search engine marketing and pay-per-click advertising are extremely powerful and effective marketing tools. When used correctly they can create a huge influx of very targeted traffic and can be extremely profitable.
The real trick is to ensure that you know what your CPA, or cost per acquisition, is and you know how much a lead is worth to you. You can use data from the web analytics service that you have (be it Google Analytics or other platforms), and find out how the purchase journey is made throughout your conversion funnel.
Once you are able to dial in how much a potential lead is worth, it becomes easier (and more comfortable) bidding on clicks for website traffic. The cost per acquisition, or CPA, formula is:
CPA = CPC/Conversion Rate, where your CPC represents the average cost per click.
For example, if you are paying $2.50 per click (kind of high depending on your industry) and you have a conversion rate of 10%, meaning that for every 10 leads you convert 1 sale, your CPA is $25- which is fine if you’re profit from sale is over $25… but what if it isn’t? This means you are either over-paying for clicks or you need to increase your conversion rate.
Let’s say you are able to do some split testing and web traffic analysis to really hone in on the user experience of your target audience, and are able to increase your conversion rate by a whopping 5% to 15%, this means that your CPA has now gone down to $16.67.
The lower your CPA the more money in your pocket and the more advantageous it is to scale your marketing efforts that deliver leads at that CPA level.
If you are having some difficulty calculating your CPA or you are using CPM pricing versus CPC pricing, Clickz has a cool CPA calculator worth checking out; very simple but gets the job done.
Far too often companies who are new to search marketing or internet marketing pay way too much for their leads without knowing or understanding the true value. In the diagram below you can see that often CPA rates, in this case cost per user acquisition, fluctuates greatly by channel.
Display advertising has made a huge comeback thanks in big part to the creation or Re-Targeting, or using cookies to have ads more or less follow your target audience around the web.
For example, have you ever been on a website looking at something to purchase, then left the website without making the purchase only to be shown the same item or company on the next website? This is Re-Targeting.
Based on the extent you (the advertiser) store the cookie in the visitors browser cache (normal duration’s are 30/60/90 days) you could potentially slowly sell your target audience for up to 3 months.