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I did the math on my advertizing dollars
Conversion rates in search engine advertizing
shopkeeper




msg:236383
 9:03 pm on Aug 20, 2003 (gmt 0)

I have been advertizing my web site through Overture and Google's AdWords for over a year. Also, most of my pages are indexed by search engines and I get a decent amount of free traffic (maybe 20%).

I did some math today and I find the results disappointing. But the truth is, I don't have a standard to compare them against. Could you comment?

*I spend on average $0.14 per visitor
*I have 1 buyer for every 162 visitors
*The average purchase price is $65.00

That means that out of the $65.00 I have earned I spent about $22.00 on marketing. That is 34%.

Is this normal, or am I wasting my time?

Thank you for your comments (however brutal).

 

Shak




msg:236384
 9:06 pm on Aug 20, 2003 (gmt 0)

Welcome to Webmasterworld [webmasterworld.com]

the main thing is:

Are you making a profit

Shak

shopkeeper




msg:236385
 9:11 pm on Aug 20, 2003 (gmt 0)

They always say not to expect to make profit in your first year, but when the second year is about to end, I would like to have something on paper showing that my hard work pays off. Sometimes I think I do it all for the love of it. That might not be a bad reason, but still...

Anyway, I think I'm breaking even, maybe making a little $$$ which get reinvested into the business. But what is the golden standard? This much for advertizing, this much for whatever...?

Opportune Moment




msg:236386
 10:21 pm on Aug 20, 2003 (gmt 0)

1 buyer in 162 visits is really pretty low honestly. I could give you industry conversion rates I have experienced.

The good news for you is 14cents a visitor is a steal.

shopkeeper




msg:236387
 10:58 pm on Aug 20, 2003 (gmt 0)

"I could give you industry conversion rates I have experienced". - If this is something you can post in this forum, please do.

vibgyor79




msg:236388
 7:03 am on Aug 21, 2003 (gmt 0)

Yep - Do not look at the sale price - look at the profits per sale.

Anyway, the customers you acquire now may come back again to make a purchase. Maybe you should capture the vistors email addresses and send "special offers" newsletters.

You also have other options -

- Reduce the CPC further (ROI is more important than traffic)
- Add more keywords to make up for the lost traffic.
- Check out other PPC search engines

chewy




msg:236389
 4:41 pm on Aug 21, 2003 (gmt 0)

are you considering .14 per visitor (all told), or .14 per paid visitor only?

can you see varying conversion rates on different sources / word combinations?

Look close.

Chew

PS: good or bad, you've got a benchmark to start from, and many don't care enough to look - so you're ahead of the game in this regard.

Michael Anthony




msg:236390
 4:55 pm on Aug 21, 2003 (gmt 0)

My stats...

Each visitor costs me 0.65 ($1.07) (It's personal finance so I accept that it's relatively pricey)
One in 6.7 visitors buys something

m2c1r




msg:236391
 8:05 pm on Aug 21, 2003 (gmt 0)

The key metrics to evaluate are cost of customer acquisition and the lifetime value of that customer.

If a customer is likely to make 10 purchases from you over the next two years, you can afford to lose money the first time they come- assuming you don't have to keep makrteing them the way to get them to come back. If, on the other hand, they only buy once, you better make a decent profit on that one sale.

1 out of 162 sounds low, but it really depends what you are selling, and 1 out of 6.7 sounds high, but again it depends. Personally, I get around 1 out of 45 buying.

Your marketing costs as a percentage of your sale price also depends entirely on what your other product costs are. If you ar selling a download, with effectively zero product cost, and only the credit card fee to pay, then you can easily spend 50% on marketing and still do well. If you are selling clothing, you should hope your marketing costs are well under 20%.

Again, figure out the customers lifetime value, and the lifetime cost of aquiring each customer, and you should get a good feel for where you're at.

SMXwebcrawler




msg:236392
 8:26 pm on Aug 21, 2003 (gmt 0)

Try tracking the keywords you are using to determine which of the clicks are dealing visitors to you. This will enable you to dispose of the junk that is costing you $'s and allow you to earn more of an ROI.

Also I think as Shak mentioned earlier:
are you making a profit!

My sentiments exactly..!

S

WebStart




msg:236393
 9:00 pm on Aug 21, 2003 (gmt 0)

I get one buyer out of every 80 clicks, from paid ads and unpaid listings. I read somewhere that a conversion ratio of 1.3% is the Industry Standard, but I cannot remember where I saw that.

Opportune Moment




msg:236394
 4:15 pm on Aug 22, 2003 (gmt 0)

I agree that you have to factor in the possibility that a buyer will repeat if they had a good experience. However, repeat purchases is VERY VERY low, even for sites where customers were extremely satisfied. I would not recommend trying to justify potential future purchases as part of your advertising spend. Just my experience.

Michael Anthony




msg:236395
 5:31 pm on Aug 22, 2003 (gmt 0)

In theory, shopkeeper could measure the level of repeat purchases from his existing customer base and assume that this will remain constant for any future customers.

However, from my own experience in a different businesses this is highly likely to result in a case of "perfect math" not fitting in with the way the real world works.

We spent around GBP250k p.a. advertising on TV for a product where we were the only advertiser. As the results were so fantastic, we increased the spend the following year but the returns were less than half the previous year's.

The reason? - our competitors had realised that we were on to a good thing and we were then advertising as a smaller fish in a now increased pond.

We also had a similar experience with press advertising - the ROI from one ad does not double if you double the ad's size - our advertising agency had a great term for this:
"The law of diminishing returns".

Another thing to consider - if you grab new customers from new marketing methods, is their loyalty likely to be the same in terms of repeat business? Answer - you don't know.

My simple conclusion for this question is in line with Shak's theory - if you're making a god profit then don't bother wondering how your competitors compare. Ever see a marathon winner looking behind himself?

Opportune Moment




msg:236396
 5:44 pm on Aug 22, 2003 (gmt 0)

My feelings why repeat web business is so low is because they never really remember your company's name. How did they get to your website originally? By typing keywords, not your url. Trying to get them to remember to come back is difficult, unless you send them (buyer's) a follow up email in a couple of months seeing if they need other products/services you offer.

m2c1r




msg:236397
 6:33 pm on Aug 22, 2003 (gmt 0)

Getting repeat business is not the customers problem- it is the store owners.

If you aren't vigilant about sending them reminders, coupons, and special offers, and asking them to refer you to friends, and offering frequent shopper programs and so on, then of course they aren't going to necessarily come back, and every sale you make is going to cost you the same high price you needed to get the first sale from them.

The lifetime value of the customer assumes you will make a reasonable effort to continue to get the custeomr to buy from you- which is proven to be much more likely after they have bought once, however you still have to work at it.

The advantage is, once they've bought once, you have their name and can contact them directly, which should cost you close to nothing compared to attracting someone who has never bought before.

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