Many of my discussions with businesses new to cost per click (CPC) advertising starts with the person saying “I have X dollars to spend” or “Look how good this is it’s only 10 cents per click”, but they are totally unaware of what their ROI is and they are not alone. This is the most common mistake people new to online advertising make.
Think Cost Per Conversion
Setting a budget in your advertising platform is important in case things go south but you must also measure your adverts performance and the best way to do this is to track your cost per conversion.
The cost per conversion can be measured as the cost per sale for eCommerce sites or cost per lead for lead generation sites and is as simple as calculating your total spend divided by the number of sales / leads it generated. Most advertising platforms such as Google Adwords provide code snippets to help you track this metric.
Think about it this way, if my average order is $100 and I am happy to spend $20 per order then as long as we maintain a $20 cost per conversion I should have an unlimited budget because for every $20 spent on CPC advertising I am receiving $100 which based on my above premise is satisfactory.
At Booktopia, we don’t have a budget on our Google Adwords and we constantly remind our Google account manager of this. We would be happy to spend double the amount we currently spend as long as we can maintain (or better decrease) our current cost per conversion. This holds true for any new advertising platform that pitches for our business, if they are confident they can meet our cost per conversion target, we are happy to give them a try.
Setting Your Target Cost Per Conversion
Every business’ “target cost per conversion” will differ dependent on their product’s margin and it should be costed in the same way all your other business costs are. Whatever you decide make sure you are clear on this target from the outset so you can measure your performance and review and adjust your advertising strategy as required.