Too many digital marketers are consumed by cost concerns when it comes to Google AdWords. Rather than asking how much you should spend, think instead about what you will get in return.
Why CPC matters less than you think
It seems counterintuitive to throw cost out the window, but the truth about cost-per-clicks is that it is an up-front payment that is not guaranteed to result in conversions. In some sectors where keywords are particularly expensive, this could mean thousands of pounds in AdWords spend without so much as a single paying customer.
CPC’s are determined by averages, so focusing on cost alone makes it too easy to forget the wide variation in keyword costs. Long-tail commercial keywords, for example, tend to cost significantly more than popular generic terms and will skew analysis of average CPC. If generic terms would work well for your company, you’d likely end up spending way too much if you only look at this average cost.
Keywords spending won’t necessarily translate to conversions or sales. Some of the cheapest CPC’s have the lowest conversion rates, and more expensive CPC’s don’t always have stellar conversion averages, either. There’s no formula to predict how CPC spending will impact your conversions and, ultimately, it’s conversions you’re after.
Focus on cost-per-action and revenue
Cost-per-action (or cost-per-acquisition) is a better way to measure campaign performance. It’s a more accurate indicator of how much it costs to attract each new customer.
Though there is some subjectivity when analysing CPA’s, tracking this metric gives you significantly more control over spending.
With CPA analysis, you can:
- Determine the point at which your campaign becomes unprofitable
- Set automated rules to adjust your budget as CPA changes
- Create a full stop on spending if CPA falls out of a predetermined range
Another more effective way to manage your ad spend is to pay attention to revenue, not costs. Easy ways to increase revenue include bundling similar items, upselling or cross-selling products, using price anchoring strategies, expanding your product line or service offerings and encouraging repeat purchases from established customers.
All of these techniques can help optimise conversions, increase order values, encourage repurchases and boost revenue, which are far more important than CPC’s.
The point of ad spending is to increase revenue. Shifting focus from finding a ‘good deal’ on CPC’s to getting the most out of every pound you spend is the quickest way to boost your bottom line.