- Welcome to video two in our Pay-Per-Click series.
In this video, I'm gonna share with you
a formula you can use to find out how much money
you should be making from your pay-per-click ads.
(dramatic music)
(graphics clicking)
What's up, people?
Tim here from Exposure Ninja and in this video,
I'm gonna share with you a killer formula
to work out how much you should be spending
and making on your pay-per-click ads.
So it's a little bit like a recipe
in that you need some ingredients
before you start working through this formula.
So we need to know some data first.
The first thing that you need to know
is your average order value.
So how much on average do customers spend with you?
Now we're gonna go through an example now,
so I'm just gonna pick a number for this.
Let's say the average order value is 1,000 pounds,
which means on average,
every customer that comes into this business,
let's use Ninja Smiles, the cosmetic dentistry company.
Fictitious, I might add, for now. (chuckles)
Average order value is 1,000 pounds.
The next thing that we need to know
is we need to know the profit margin.
So what percentage of that is gonna be profit?
Let's say that the profit margin is 50%,
so we know that on our average order of 1,000 pounds,
we're making 500 pounds profit.
The next thing that we need to know
is the website's conversion rate, so what percentage
of your website visitors are turning into sales?
So let's say, for example,
we're taking a very underperforming, average website
and we're saying it's converting at 1%,
which means we need to get 100 visitors
through the site to get one of those sales.
So the formula that you're gonna use is this.
What we need to do first is we need to work out
what's called the CPA max.
So this is the most that we can afford to spend
to get each customer.
Now the most you can afford to spend
is your average order value
times by your profit margin, right?
So in this case, 1,000 pounds times 50%,
your maximum that you would be willing to pay
to acquire a customer is 500 pounds.
Now that might not sound appealing,
because you're breaking even.
Now breaking even may or may not be good,
depending on is this a one-off purchase?
If this is a one-off purchase,
you don't wanna just break even on your sales,
'cause then you've gotta work
and you're not getting anything out the back end.
If, however, you know that this is like a gateway purchase
and people are gonna be spending more at the time,
or they're gonna bring their friends and family,
or you're a new business and you wanna get credibility
and testimonials, you might be willing to break even.
But this is the absolute maximum CPA
that you would ever want to run.
You're not losing money,
you're just not making money either.
So we've got our CPA max.
What we now need to work out is what we can expect
our cost per acquisition to be through pay-per-click.
So the first thing that we need to know,
we need to measure, is how much we're spending
per click on average for our target keywords.
So let's say in this example with Ninja Smiles,
we're gonna be spending two pounds per click.
We know that our website conversion rate is 1%,
so if we wanna work out what our cost per acquisition
for pay-per-click is gonna be,
it's simply gonna be CPC times 100,
divided by your conversion rate.
And that equals your cost per acquisition
from pay-per-click.
So what we can get from this example,
and stick with me if this is feeling
a little bit complicated, trust me, it's easy,
I'm going to put a big border around this one
to make it feel less complicated and a bit more accessible.
So what we're gonna get from this one
is if we're spending two pounds per click,
our conversion rate is 1%,
we know we need to get 100 visitors.
That means we're gonna have to spend, or we're gonna spend,
200 pounds to get each sale.
So that's our predicted cost per acquisition
through pay-per-click.
So it's going to cost us 200, we're gonna make 500,
or we can afford to spend 500.
So if there's a gap there, if your max CPA
is higher than your pay-per-click CPA, happy days.
You'd be running this all day long, wouldn't you?
If you could put 200 pounds in and get 500 pounds out,
you'd be shovelling cash into Google's pockets
as hard as you possibly could 24/7,
so that's good news.
If, however, let's say that
your cost-per-click was 12 pounds, right?
Let's imagine that this is now 12 pounds.
Well, we know that we've got to get 100 visitors to the site
in order to get each lead or sale.
That means it's gonna cost us 1,200 pounds
to get a lead.
Well, 1,200 is higher
than your max CPA of 500.
Sad times, you're losing 700 pounds
every conversion you get.
So that's not good, it needs to change.
So if you've got a number there that you don't like,
if you're gonna be paying too much
for every one of your leads,
what are the levers that you have to play with?
Well, the easiest lever to play with
is this one, your conversion rate.
Because there are a lot of things that you can do
with your website to improve your conversion rate.
You're certainly gonna have more control over that
than necessarily the amount that you might be spending
for each of your clicks, okay?
And we're gonna talk in a later video about how you improve
the conversion rate of your landing pages,
but let's just do another example here.
So let's say that we're able to get
the conversion rate from 1%, which is really low,
which is really poor, to, say, 4%, okay?
So we're able to take that to 4% by, for example,
having a dedicated landing page
instead of driving the traffic to your website.
So what does that start to look like?
Well, now we only need to get 25 visitors
on the website to get each lead or sale.
So if our cost per click is two pounds,
we're (chuckles) spending 25
times two pounds,
so that's 50 pounds per lead.
Well, we know that we're gonna make 500 pounds per lead,
so that's good news, right?
So you can see how improving this conversion rate
transforms it, every percent that you increase
your conversion rate from 1%, basically,
if you turn that from one to 2%, you double your profit.
If you turn that from one to 4%, you quadruple your profit.
So you can see why at Exposure Ninja
we're such fans of conversion rate,
because it changes the game for all of these metrics.
In the next video in this series,
we're gonna look at the keywords that you're targeting
in your pay-per-click ads, because making sure
that you're not overpaying for your keywords
and making sure you're getting the very best quality traffic
is really really important.
If you want some help with this, then don't forget
to head over to the Exposure Ninja website
to request a free digital marketing review.
If you head over to exposureninja.com,
you'll see a big green button.
If you give that a click, you'll land in our world-famous
free website and marketing review.
We'll ask you a few questions about your business,
you'll give us some details, and then one of our team
will record you a 15-minute video
showing you how to generate more leads
and sales through your website.
It's completely free of charge.
There's no obligation to use our services, although,
I have to warn you, it is a pretty good sales strategy,
so you might end up using us as a result of seeing
your video, but there's no obligation to do so.
so head over to Exposure Ninja, request your free review,
and I'll see you in the next video here!