Pay-per-click (PPC) advertising has become increasingly popular since it first became popular two years ago. It is a free market in the same way that eBay is, and the cost of certain search engine keywords has skyrocketed to more than $10 per click. Companies that are willing to pay more than $5.00 per click are aware of how to make it work, but there are many cases where PPC works for one company but not for another in the same industry, even when the keywords are the same. Large and small businesses will enter, bid for a week or two, and then leave, never to be heard from again. PPC advertising requires a lot of effort to make it work, so it is important to understand how much it costs to acquire a new customer or order.
To do this, divide your total advertising expenditures by the number of new acquisitions (orders or customers) to get a rough estimate of your cost per acquisition. I've managed campaigns with average cost-per-clicks ranging from $0.40 to $5.00. The keyword bidding market is still small and untapped, but there are significant gaps in cost-per-click between the first and last click. These gaps represent tremendous opportunities in this media, and the time to act is NOW for those who understand this important marketing tool.
I've been using pay-per-click (PPC) advertising since it first became popular about two years ago. The advertiser is only charged when someone clicks on their link when using PPC. The cost-per-click is the amount you actually pay for each click (CPC). I'll be honest, I was skeptical at first. But, since then, I've seen the cost of certain search engine keywords skyrocket to more than $10 per click! The big question isn't how much each click costs, but how many clicks it takes to get an acquisition. I've often wondered why so many companies would pay that much money for a single, measly push of the index finger. The answer is simple: it simply works!
HOW TO EXPLAIN $10 PER CLICK
The introduction of PPC advertising has forever altered Internet marketing. It is a free market in the same way that eBay is — it is governed by a natural supply and demand relationship. For a keyword phrase like "debt consolidation," the top five advertisers are willing to pay CPCs of $10.01, $10.00, $9.99, $7.00, and $6.97, respectively. My first thought was that something was wrong with this picture - it couldn't be! So I looked at the phrase "life insurance," and the top five range from $7.00 to $3.50. Then there are drugs like "Xenical," which cost between $6.76 and $6.74. There are numerous other examples in which the cost-per-click exceeds $6.00, $7.00, or $10.00, but you get the idea.
The truth is that, while PPC advertising can be quite effective, it can also be a complete failure. Companies that are willing to pay more than $5.00 per click are almost certainly aware of how to make it work; otherwise, they would not pay those prices.
THE CHOSEN FEW
I've seen many cases where PPC works for one company but not for another in the same industry, even when the keywords are the same. Large and small businesses will enter, bid for a week or two, and then leave, never to be heard from again. Some will come in, drive up prices, and then fade away into obscurity. The successful few have discovered the secret: a combination of patience, determination, creativity, keyword selection, management, and analysis. Every day, they do the math; every day, they manage the bids; every day, they look for new keywords; and every day, they analyze the results. It takes a lot of effort to figure out how to make PPC advertising work, and those who have are now reaping the benefits - every day.
HOW MUCH DOES AN ACQUISITION COST?
To determine whether your PPC advertising is justified, you must first understand your current acquisition cost - how much it now costs to acquire a new customer or order? It's amazing how few businesses understand their acquisition cost. To keep things simple, divide your total advertising expenditures by the number of new acquisitions (orders or customers) to get a rough estimate of your cost per acquisition. Similarly, after a month of running a PPC campaign, divide the total advertising expenditures by the number of acquisitions. Of course, these raw figures do not include administrative costs, but they do provide an apples-to-apples comparison.
I've managed PPC campaigns with average cost-per-clicks ranging from $0.40 to $5.00. The big question is how many clicks it takes to get an acquisition. If each click costs $0.40 and an acquisition requires 200 clicks, the acquisition cost is $80.00. If each click costs $5.00 and it takes ten clicks, the acquisition costs $50.00.
FINDING THE HOLES
There are two critical points to remember: (1) How much does an Internet acquisition cost in comparison to traditional methods? (2) What is the worth of a new customer? A new customer is worth $1,000 in some businesses but only $10 in others. The cost-per-click typically reflects this value, but because the market is still very small, there are significant gaps. Remember the keyword phrase "debt consolidation" from earlier? The difference in cost-per-click between the first and last click was approximately 30%. On the other hand, the cost-per-click rates for the keyword "Xenical" are virtually identical. From this you may conclude that there is a lot more competition for "Xenical" then there is for "debt consolidation". In the 30% differential example, the opportunity is between the gaps.
The keyword bidding market is still so new and untapped that it's unusual to see more than three competitors fighting over a single phrase. Gaps in keyword CPC charges, such as "debt consolidation," are the norm and represent tremendous opportunities in this media. They are plentiful right now, and the time to act is NOW for those few people who take the time to understand this important marketing tool!
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