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At
the end of the day, the success or failure of every ad campaign you run
will depend on knowing your
numbers. Calculating your specific business numbers should be the
very first (and most crucial) step to set up a profitable Google Ads
campaign. Yet, many businesses skip this step, and instead, move
hastily to setting up the main components of the campaign like
keywords, ads, and landing pages.
That’s
like buying a new couch without first taking the time to measure your
living room to see if it’ll fit. Sure, you could get lucky, but it’s
going to be painful if you find out the couch is too big! And that’s
what can happen if you rush into advertising before knowing your
numbers. You can end up advertising on keywords that, no matter how
much you optimize, will simply never allow you to hit your business
goals.
How Much Can You Afford to Pay?
When
calculating your business numbers, one of the most important questions
you have to answer is, “How
much can you afford to pay PER CLICK to generate one customer?”
Can you afford to pay $1, $5, or $10 per click? That’s obviously an important
question to answer so you know how much you can bid in Google Ads (aka
AdWords).
Keep
in mind this number is going to be different for every business. Just
because you’re a dentist, and you know other dentists are paying $5 per
click, doesn’t mean you can afford to pay that much. It depends on many
factors that are not readily apparent when you do competitive research.
For
example, in order to figure out how much you can pay per click, you
need to first answer the following questions:
·
What is your 90-day profit per customer?
·
What is your target advertising profit margin?
·
On average, how many phone call leads convert to sales?
·
On average, how many calls can you expect to receive from
your website visitors each month?
Based
on the answers to those questions, you can calculate a rough estimate
for your maximum cost per click. Let’s take a look at an example.
Le’s
say your average 90-day profit per customer is $1,250. To arrive at
this number you need to take into account the initial profit per sale,
average repeat sales, up-sells and cross-sells to more products or
services, and even referrals.
Next,
let’s say your target ad profit margin is 25%. So if you invest $1,000
into Google Ads, then you want to generate $250 in profit. Based on
historical data, you may find that you convert about 10% of all phone
call leads into customers and you expect to receive about 5 phone calls
per 100 visitors to your website.
The
formula to calculate your maximum cost per click is: $1,250 x (1-25%) x
10% x 5%
Once
you do the math, then you’ll see your maximum cost per click, or CPC,
is $4.69. That means you can pay up to $4.69 to generate a visitor to
your website. If you pay more, then you’ll most likely have a
low-profit margin or even worse, lose money on the ad campaign.
See
how powerful it is to know your numbers? Now you can identify
the keywords you have confidence will be profitable, and the keywords
that will most likely never work for your particular business. This
simple exercise will save you from a lot of pain and frustration… so
don’t skip this important step the next time you set up an ad campaign!
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